As filed with the Securities and Exchange Commission on December 29, 1995
Registration Statement Nos. 2-89725
811-3981
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 19 [x]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 20 [x]
(Check appropriate box or boxes)
----------
PRUDENTIAL GLOBAL FUND, INC.
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
----------
Registrant's Telephone Number, Including Area Code: (212) 214-1250
S. Jane Rose, Esq.
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service of Process)
----------
Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate
box):
[ ] immediately upon filing pursuant to paragraph (b)
[x] on (January 2, 1996) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Title of Securities Amount Being Offering Price Aggregate Registration
Being Registered Registered Per Share* Offering Price** Fee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of beneficial interest,
par value $.01 per share Indefinite** N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest,
par value $.01 per share 1,387,699 $15.17 $289,989.72 $100.00
==================================================================================================================================
* The calculation of the maximum aggregate offering price was made pursuant to Rule 24e-2 and was based upon an offering price
of $15.17 per share, equal to the net asset value per share as of the close of business on December 19, 1995 pursuant to Rule
457(d). The total number of shares redeemed during the fiscal year ended October 31, 1995 amounted to 24,872,707 shares. Of
this number, no shares have been used for reduction pursuant to paragraph (a) of Rule 24f-2 in all previous filings of
post-effective amendments during the current year, and 23,504,124 shares have been used for reduction pursuant to paragraph (c)
of Rule 24e-2 in all previous filings during the current year. 1,368,583 ($2,735,764) of the redeemed shares for the fiscal
year ended October 31, 1995 are being used for the reductions in the post-effective amendment being filed herein.
** Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has previously registered an Indefinite number of
shares of its Common Stock par value $.01 per share. The Registrant has filed a notice under such Rule for its fiscal year
ended October 31, 1995 within 60 days of such date.
==================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
(as required by Rule 495)
<S> <C>
N-1A Item No. Location
- ------------- --------
Part A
Item 1. Cover Page ...................................................... Cover Page
Item 2. Synopsis ........................................................ Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information ................................. Fund Expenses; Financial Highlights;
How the Fund Calculates Performance
Item 4. General Description of Registrant ............................... Cover Page; Fund Highlights; How
the Fund Invests; General Information
Item 5. Management of Fund .............................................. Financial Highlights; How the
Fund is Managed
Item 6. Capital Stock and Other Securities .............................. Taxes, Dividends and
Distributions; General Information
Item 7. Purchase of Securities Being Offered ............................ Shareholder Guide; How the Fund
Values Its Shares
Item 8. Redemption or Repurchase ........................................ Shareholder Guide; How the Fund
Values Its Shares
Item 9. Pending Legal Proceedings ....................................... Not Applicable
Part B
Item 10. Cover Page ...................................................... Cover Page
Item 11. Table of Contents ............................................... Table of Contents
Item 12. General Information and History ................................. Not Applicable
Item 13. Investment Objectives and Policies .............................. Investment Objective and
Policies; Investment Restrictions
Item 14. Management of the Fund .......................................... Directors and Officers; Manager;
Distributor
Item 15. Control Persons and Principal Holders of Securities ............. Not Applicable
Item 16. Investment Advisory and Other Services .......................... Manager; Distributor; Custodian,
Transfer and Dividend Disbursing
Agent and Independent Accountants
Item 17. Brokerage Allocation and Other Practices ........................ Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other Securities .............................. Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Being Offered .... Purchase and Redemption of Fund
Shares; Shareholder Investment
Account; Net Asset Value
Item 20. Tax Status ...................................................... Taxes
Item 21. Underwriters .................................................... Distributor
Item 22. Calculation of Performance Data ................................. Performance Information
Item 23. Financial Statements ............................................ Financial Statements
Part C
Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C to this
Post-Effective Amendment to the Registration Statement.
</TABLE>
<PAGE>
Prudential Global Fund, Inc.
Class Z shares
- --------------------------------------------------------------------------------
Prospectus dated January 2, 1996
- --------------------------------------------------------------------------------
Prudential Global Fund, Inc. (the Fund) is an open-end, diversified management
investment company. Its investment objective is to seek long-term growth of
capital, with income as a secondary objective. The Fund seeks to achieve its
objective through investment in a diversified portfolio of securities which will
consist of marketable securities of U.S. and non-U.S. issuers. The Fund may
invest in all types of common stocks and equivalents (such as convertible debt
securities and warrants), preferred stocks, bonds and other debt obligations,
including money market instruments, of foreign and domestic companies and
governments, governmental agencies and international organizations. The Fund may
also engage in derivative transactions, such as those involving stock options,
options on debt securities, options on stock indices, stock index futures and
options on stock index futures so as to hedge its portfolio and to attempt to
enhance return. There can be no assurance that the Fund's investment objective
will be achieved. See "How the Fund Invests--Investment Objective and Policies".
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
The Fund is not intended to constitute a complete investment program. The Fund
intends to pay annual dividends consisting of substantially all of its net
investment income and net short-term and long-term capital gains, if any.
Because of its objective and policies, including its international orientation,
the Fund may be considered of a speculative nature and subject to greater
investment risks than are assumed by certain other investment companies which
invest solely in domestic securities. See "How the Fund Invests--Risks and
Special Considerations" in the Retail Class Prospectus (defined below).
Class Z shares are offered exclusively for sale to participants in the PSI
401(k) Plan, an employee benefit plan sponsored by Prudential Securities (the
PSI 401(k) Plan or the Plan). Only Class Z shares are offered through this
Prospectus. The Fund also offers Class A, Class B and Class C shares through the
attached Prospectus dated January 2, 1996 (the Retail Class Prospectus) which is
a part hereof.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated January 2, 1996, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
================================================================================
FUND EXPENSES
================================================================================
<TABLE>
<CAPTION>
Shareholder Transaction Expenses Class Z Shares
--------------
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ......................................... None
Maximum Sales Load or Deferred Sales Load Imposed on Reinvested Dividends .... None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, whichever is lower) ................................. None
Redemption Fees .............................................................. None
Exchange Fee ................................................................. None
Annual Fund Operating Expenses Class Z Shares*
(as a percentage of average net assets) ---------------
Management Fees .............................................................. .75%
12b-1 Fees ................................................................... None
Other Expenses ............................................................... .51%
----
Total Fund Operating Expenses ................................................ 1.26%
====
1 3 5 10
Example year years years years
------- ---- ----- ----- -----
You would pay the following expenses on
a $1,000 investment, assuming:
(1) 5% annual return and
(2) redemption at the end of each time period:
Class Z* ............................................................$13 $40 $69 $152
</TABLE>
The above example is based on expenses expected to have been incurred if Class Z
shares had been in existence during the entire fiscal year ended October 31,
1995. The example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in Class Z shares of the Fund will bear,
whether directly or indirectly. For more complete descriptions of the various
costs and expenses, see "How the Fund is Managed" in the Retail Class
Prospectus. "Other Expenses" includes operating expenses of the Fund, such as
Directors' and professional fees, registration fees, reports to shareholders,
transfer agency and custodian fees and franchise taxes.
- ----------
* Estimated based on expenses expected to have been incurred if Class Z
shares had been in existence during the entire fiscal year ended October
31, 1995.
2
<PAGE>
The following information supplements "How the Fund is
Managed--Distributor" in the Retail Class Prospectus:
Prudential Securities serves as the Distributor of Class Z shares and
incurs the expenses of distributing the Fund's Class Z shares under a
Distribution Agreement with the Fund, none of which are reimbursed by or
paid for by the Fund.
The following information supplements "How the Fund Values its Shares" in
the Retail Class Prospectus:
The NAV of Class Z shares will generally be higher than the NAV of
Class A, B or C shares because Class Z shares are not subject to any
distribution and/or service fee. It is expected, however, that the NAV of
the four classes will tend to converge immediately after the recording of
dividends, which will differ by approximately the amount of the
distribution-related expense accrual among the classes.
The following information supplements "Taxes, Dividends and
Distributions--Taxation of Shareholders" in the Retail Class Prospectus:
As a qualified plan, the PSI 401(k) Plan generally pays no federal
income tax. Individual participants in the Plan should consult the Plan
documents and their own tax advisers for information on the tax
consequences associated with participating in the PSI 401(k) Plan.
The per share dividends on Class Z shares will generally be higher
than the per share dividends on Classes A, B or C shares because Class Z
shares are not subject to any distribution and/or service fee.
The following information replaces the information under "Shareholder
Guide--How to Buy Shares of the Fund" and "Shareholder Guide--How to Sell
Your Shares" in the Retail Class Prospectus:
Class Z shares of the Fund are offered exclusively for sale to the
participants in the PSI 401(k) Plan. Such shares may be purchased or
redeemed only by the Plan on behalf of individual plan participants at NAV
without any sales or redemption charge. Class Z shares are not subject to
any minimum investment requirements. The Plan purchases and redeems shares
to implement the investment choices of individual plan participants with
respect to their contributions in the Plan. All purchases through the Plan
will be for Class Z shares. Individual plan participants should contact the
Prudential Securities Benefits Department for information on making or
changing of investment choices. The Prudential Securities Benefits
Department is located at One Seaport Plaza, 33rd Floor, New York, New York
10292 and may be reached by calling (212) 214-7194.
The average net asset value per share at which shares of the Fund are
purchased or redeemed by the Plan for the accounts of individual plan
participants might be more or less than the net asset value per share
prevailing at the time that such participants made their investment choices
or made their contributions to the Plan.
The following information supplements "Shareholder Guide--How to Exchange
Your Shares" in the Retail Class Prospectus:
It is anticipated that Class A shares held through the PSI 401(k) Plan
on behalf of participants will be automatically exchanged at relative net
asset value for Class Z shares in March 1996. You should contact the
Prudential Securities Benefits Department about how to exchange your Class
Z shares for Class Z shares of other Prudential Mutual Funds. See "How to
Buy Shares of the Fund" above.
The information above also supplements the information under "Fund
Highlights" in the Retail Class Prospectus as appropriate.
3
<PAGE>
Prudential Global Fund, Inc.
- --------------------------------------------------------------------------------
Prospectus dated January 2, 1996
- --------------------------------------------------------------------------------
Prudential Global Fund, Inc. (the Fund) is an open-end, diversified management
investment company. Its investment objective is to seek long-term growth of
capital, with income as a secondary objective. The Fund seeks to achieve its
objective through investment in a diversified portfolio of securities which will
consist of marketable securities of U.S. and non-U.S. issuers. The Fund may
invest in all types of common stocks and equivalents (such as convertible debt
securities and warrants), preferred stocks, bonds and other debt obligations,
including money market instruments, of foreign and domestic companies and
governments, governmental agencies and international organizations. The Fund
also may engage in derivative transactions, such as those involving stock
options, options on debt securities, options on stock indices, stock index
futures and options on stock index futures so as to hedge its portfolio and to
attempt to enhance return. There can be no assurance that the Fund's investment
objective will be achieved. See "How the Fund Invests--Investment Objective and
Policies". The Fund's address is One Seaport Plaza, New York, New York 10292,
and its telephone number is (800) 225-1852.
The Fund is not intended to constitute a complete investment program. The Fund
intends to pay annual dividends consisting of substantially all of its net
investment income and net short-term and long-term capital gains, if any.
Because of its objective and policies, including its international orientation,
the Fund may be considered of a speculative nature and subject to greater
investment risks than are assumed by certain other investment companies which
invest solely in domestic securities. See "How the Fund Invests--Risks and
Special Considerations".
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated January 2, 1996, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund, at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
================================================================================
FUND HIGHLIGHTS
================================================================================
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
What is Prudential Global Fund, Inc.?
Prudential Global Fund, Inc. is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified
management investment company.
What is the Fund's Investment Objective?
The Fund's investment objective is to seek long-term growth of capital with
income as a secondary objective. The Fund seeks to achieve its objective through
investment in a diversified portfolio of marketable securities of U.S. and
non-U.S. issuers. There can be no assurance that the Fund's objective will be
achieved. See "How the Fund Invests--Investment Objective and Policies" at page
8.
Risk Factors and Special Characteristics
While the Fund is not required to maintain any particular geographic or
currency mix of its investments, under normal circumstances the Fund intends to
maintain investments in a minimum of four countries, which may include the
United States. The Fund may, from time to time, invest up to 65% of its assets
in companies and governments located in any one country. The Fund may invest in
all types of common stocks and equivalents, preferred stocks, bonds and other
debt obligations of foreign and domestic companies, governments, government
agencies and international organizations. See "How the Fund Invests--Investment
Objective and Policies" at page 8. Investing in securities of foreign companies
and countries involves certain considerations and risks not typically associated
with investing in U.S. Government Securities and those of domestic companies.
See "How the Fund Invests--Risks and Special Considerations" at page 14. The
Fund may also engage in hedging and return enhancement strategies, including
derivatives, the purchase and sale of put and call options, foreign currency
forward contracts, options and futures transactions and related short-term
trading. See "How the Fund Invests--Hedging and Return Enhancement Strategies"
at page 9.
Who Manages the Fund?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Fund and is compensated for its services at an annual rate of .75 of 1%
of the Fund's average daily net assets. As of November 30, 1995, PMF served as
manager or administrator to 60 investment companies, including 36 mutual funds,
with aggregate assets of approximately $50 billion. The Prudential Investment
Corporation (PIC or the Subadviser) furnishes investment advisory services in
connection with the management of the Fund under a Subadvisory Agreement with
PMF. See "How the Fund is Managed--Manager" at page 15. The management fee is
higher than that paid by most other investment companies.
Who Distributes the Fund's Shares?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's Class A, Class B and Class C shares and is paid an
annual distribution and service fee which is currently being charged at the rate
of .25 of 1% of the average daily net assets of the Class A shares, and at the
annual rate of up to 1% of the average daily net assets of each of the Class B
and Class C shares. Prior to January 2, 1996, Prudential Mutual Fund
Distributors, Inc. (PMFD) acted as Distributor of the Fund's Class A shares. See
"How the Fund is Managed--Distributor" at page 16.
2
<PAGE>
What is the Minimum Investment?
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors and for purchases made in connection with the "Best Minds" program
sponsored by the Distributor. For purchases made through the Automatic Savings
Accumulation Plan the minimum initial and subsequent investment is $50. See
"Shareholder Guide--How to Buy Shares of the Fund" at page 21 and "Shareholder
Guide--Shareholder Services" at page 29.
How Do I Purchase Shares?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent) at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). See "How the Fund Values Its Shares"
at page 18 and "Shareholder Guide--How to Buy Shares of the Fund" at page 21.
What Are My Purchase Alternatives?
The Fund offers three classes of shares:
o Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.
o Class B Shares: Sold without an initial sales charge but are subject
to a contingent deferred sales charge or CDSC
(declining from 5% to zero of the lower of the amount
invested or the redemption proceeds) which will be
imposed on certain redemptions made within six years
of purchase. Although Class B shares are subject to
higher ongoing distribution-related expenses than
Class A shares, Class B shares will automatically
convert to Class A shares (which are subject to lower
ongoing distribution-related expenses) approximately
seven years after purchase.
o Class C Shares: Sold without an initial sales charge and, for one year
after purchase, are subject to a 1% CDSC on
redemptions. Like Class B shares, Class C shares are
subject to higher ongoing distribution-related
expenses than Class A shares but do not convert to
another class.
See "Shareholder Guide--Alternative Purchase Plan" at page 22.
How Do I Sell My Shares?
You may redeem shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 25.
How are Dividends and Distributions Paid?
The Fund expects to pay dividends of net investment income and make
distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of the Fund
at NAV without a sales charge unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page 19.
3
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
FUND EXPENSES
====================================================================================================================================
Shareholder Transactions Expenses+ Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price) ................................. 5% None None
Maximum Sales Load or Deferred Sales Load Imposed on
Reinvested Dividends .......................................... None None None
Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds, whichever is lower) ............. None 5% during the first 1% on redemptions
year, decreasing by made within one year
1% annually to 1% in of purchase
the fifth and sixth
years and 0% the
seventh year*
Redemption Fees ................................................ None None None
Exchange Fees .................................................. None None None
Annual Fund Operating Expenses
(as a percentage of average net assets) Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Management Fees ................................................ .75% .75% .75%
12b-1 Fees (after reduction) ................................... .25%++ .93% 1.00%
Other Expenses ................................................. .51% .51% .51%
---- ---- ----
Total Fund Operating Expenses .................................. 1.51% 2.19% 2.26%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
Example Year Years Years Years
----- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
Class A ................................................................. $65 $95 $128 $221
Class B ................................................................. $72 $99 $127 $210
Class C ................................................................. $33 $70 $120 $258
You would pay the following expenses on the same investment, assuming no
redemption:
Class A ................................................................. $65 $95 $128 $221
Class B ................................................................. $22 $69 $117 $227
Class C ................................................................. $23 $70 $128 $258
</TABLE>
The example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear, whether directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "How the Fund is Managed". "Other Expenses" includes operating expenses of
the Fund such as Directors' and professional fees, registration fees, reports to
shareholders, transfer agency and custodian fees and franchise taxes.
- ----------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion
Feature--Class B Shares."
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Fund may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
the Fund rather than on a per shareholder basis. Therefore long-term
shareholders of the Fund may pay more in total sales charges than the
economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Fund is Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the Fund
may pay up to an annual rate of .30 of 1% of the average daily net assets
of the Class A shares, the Distributor has agreed to limit its distribution
fees with respect to Class A shares of the Fund to .25 of 1% of the average
daily net asset value of the Class A shares for the fiscal year ending
October 31, 1996. Total operating expenses without such limitation would be
1.56%. See "How the Fund is Managed--Distributor".
4
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the indicated periods)
(Class A Shares)
================================================================================
The following financial highlights have been audited by Deloitte & Touche
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Class A share of
common stock outstanding, total return, ratios to average net assets and other
supplemental data for the periods indicated. The information is based on data
contained in the financial statements.
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------------------
January 22,
1990(d)
Year ended October 31, through
----------------------------------------------------------------------- October 31,
1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(b):
Net asset value, beginning of period ...... $ 14.89 $13.17 $ 9.58 $10.08 $ 9.19 $10.38
-------- ------- ------- ------- ------- ------
Income from investment operations:
Net investment income (loss) .............. .01 (.04) 0.02 0.03 0.07 0.12
Net realized and unrealized gain
(loss) on investment
and foreign currency transactions ........ .81 1.76 3.57 (.53) 1.02 (1.31)
-------- ------- ------- ------- ------- ------
Total from investment operations .......... .82 1.72 3.59 (.50) 1.09 (1.19)
-------- ------- ------- ------- ------- ------
Less distributions:
Dividends from net investment income ...... -- -- -- -- (0.16) --
Distributions from net realized gains
on investment and foreign currency
transactions ............................. (.19) -- -- -- (0.04)
Total distributions ....................... (.19) -- -- -- (0.20) --
-------- ------- ------- ------- ------- ------
Net asset value, end of period ............ $ 15.52 $ 14.89 $13.17 $ 9.58 $10.08 $ 9.19
======== ======= ======= ======= ======= ======
TOTAL RETURN(c) ........................... 5.74% 13.06% 37.47% (4.96)% 12.11% (11.46)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ........... $222,002 $73,815 $42,021 $13,973 $14,154 $8,727
Average net assets (000) .................. $174,316 $58,455 $21,409 $14,758 $10,593 $7,151
Ratios to average net assets:
Expenses, including distribution fees .... 1.51% 1.55% 1.56% 1.71% 1.72% 1.57%(a)
Expenses, excluding distribution fees .... 1.26% 1.30% 1.36% 1.51% 1.52% 1.37%(a)
Net investment income (loss) ............. .10% (0.29)% 0.20% 0.22% 0.65% 1.61%(a)
Portfolio turnover rate ................... .50% 49% 69% 58% 126% 35%
</TABLE>
- ----------
(a) Annualized.
(b) Based on average shares outstanding, by class.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Commencement of offering of Class A shares.
5
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the indicated periods)
(Class B Shares)
================================================================================
The following financial highlights for the six years ended October 31, 1995
have been audited by Deloitte & Touche LLP, independent accountants, whose
report thereon was unqualified. This information should be read in conjunction
with the financial statements and notes thereto, which appear in the Statement
of Additional Information. The following financial highlights contain selected
data for a Class B share of common stock outstanding, total return, ratios to
average net assets and other supplemental data for the periods indicated. The
information is based on data contained in the financial statements.
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------------------------------------
Year ended October 31,
-------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE(a):
Net asset value, beginning of period .. $ 14.53 $ 12.94 $ 9.47 $ 10.05 $ 9.14 $ 10.46
----------- ----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income (loss) .......... (.11) (.13) (0.04) (0.05) -- 0.05
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions ......................... .80 1.72 3.51 (0.53) 1.02 (1.10)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations ...... .69 1.59 3.47 (0.58) 1.02 (1.05)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends from net investment
income ............................... -- -- -- -- (0.07) (0.18)
Distributions paid to shareholders from
net realized gains on investment
and foreign currency transactions .... (.19) -- -- -- (0.04) (0.09)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ................... (.19) -- -- -- (0.11) (0.27)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period ........ $ 15.03 $ 14.53 $ 12.94 $ 9.47 $ 10.05 $ 9.14
=========== =========== =========== =========== =========== ===========
TOTAL RETURN(c) ....................... 4.98% 12.29% 36.64% (5.77)% 11.29% (10.43)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ....... $ 268,498 $ 410,520 $ 251,133 $ 178,438 $ 249,582 $ 261,555
Average net assets (000) .............. $ 287,656 $ 345,771 $ 183,741 $ 210,464 $ 253,866 $ 328,467
Ratios to average net assets:
Expenses, including distribution
fees ................................ 2.19% 2.24% 2.24% 2.40% 2.44% 2.23%
Expenses, excluding distribution
fees ................................. 1.27% 1.31% 1.36% 1.51% 1.53% 1.37%
Net investment income (loss) ......... (.84)% (0.97)% (0.39)% (0.47)% (0.01)% 0.51%
Portfolio turnover rate ............... 50% 49% 69% 58% 126% 35%
</TABLE>
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------
Year ended October 31,
-----------------------------------------------------------
1989 1988(b) 1987 1986
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE(a):
Net asset value, beginning of period .. $ 10.09 $ 9.86 $ 9.96 $ 6.95
----------- ----------- ----------- -----------
Income from investment operations:
Net investment income (loss) .......... 0.15 0.17 0.06 (0.01)+
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions ......................... 0.53 1.11 0.79 3.23
----------- ----------- ----------- -----------
Total from investment operations ...... 0.68 1.28 0.85 3.22
----------- ----------- ----------- -----------
Less distributions:
Dividends from net investment
income ............................... (0.19) (0.07) -- (0.02)
Distributions paid to shareholders from
net realized gains on investment
and foreign currency transactions .... (0.12) (0.98) (0.95) (0.19)
----------- ----------- ----------- -----------
Total distributions ................... (0.31) (1.05) (0.95) (0.21)
----------- ----------- ----------- -----------
Net asset value, end of period ........ 10.46 $ 10.09 $ 9.86 $ 9.96
=========== =========== =========== ===========
TOTAL RETURN(c) ....................... 6.92% 13.58% 8.81% 46.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ....... $ 385,578 $ 523,743 $ 628,542 $ 376,839
Average net assets (000) .............. $ 448,737 $ 571,420 $ 697,486 $ 238,239
Ratios to average net assets:
Expenses, including distribution
fees ................................ 1.82% 1.86%(d) 1.96% 1.89%(d)
Expenses, excluding distribution
fees ................................. 1.34% 1.17%(d) 1.14% 1.03%(d)
Net investment income (loss) ......... 1.45% 1.71%(d) 0.52% (0.13)%(d)
Portfolio turnover rate ............... 60% 82% 135% 80%
</TABLE>
- ----------------
(a) Based on average shares outstanding, by class.
(b) On March 1, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as investment adviser and since
then has acted as manager of the Fund. See "Manager" in the Statement of
Additional Information.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Net of expense subsidy or reimbursement.
6
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the indicated period)
(Class C Shares)
================================================================================
The following financial highlights have been audited by Deloitte &
Touche LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Class C share of
common stock outstanding, total return, ratios to average net assets and other
supplemental data for the period indicated. The information is based on data
contained in the financial statements.
Class C
----------------------------------
Year August 1, 1994(d)
Ended through
October 31, 1995 October 31, 1994
---------------- ----------------
PER SHARE OPERATING PERFORMANCE(b):
Net asset value, beginning of period ......... $ 14.53 $ 12.94
Income from investment operations:
Net investment loss .......................... (.11) (.03)
Net realized and unrealized gain on investment
and foreign currency transactions .......... .80 1.62
--------- ---------
Total from investment operations ............. .69 1.59
--------- ---------
Less distributions:
Dividends from net investment income ......... -- --
Distributions paid to shareholders from net
realized gains on investment
and foreign currency transactions ........... (.19) --
--------- ---------
Total distributions .......................... (.19) --
--------- ---------
Net asset value, end of period ............... $ 15.03 $ 14.53
========= =========
TOTAL RETURN(c) .............................. 4.98% 3.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) .............. $ 3,733 $ 1,205
Average net assets (000) ..................... $ 2,284 $ 630
Ratios to average net assets:
Expenses, including distribution fees ....... 2.25% 2.63%(a)
Expenses, excluding distribution fees ....... 1.25% 1.63%(a)
Net investment income (loss) ................ (.76)% (1.21)%(a)
Portfolio turnover rate ...................... 50% 49%
- ----------
(a) Annualized.
(b) Based on average shares outstanding, by class.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of the period reported and includes reinvestment of dividends and
distributions. Total return for the period less than a full year is not
annualized.
(d) Commencement of offering of Class C shares.
7
<PAGE>
================================================================================
HOW THE FUND INVESTS
================================================================================
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term growth of
capital, with income as a secondary objective. The Fund will seek to achieve its
objectives through investment in a diversified portfolio of securities which
will consist of marketable securities of U.S. and non-U.S. issuers. Marketable
securities are those for which market quotations are readily available. There
can be no assurance that the Fund will achieve its investment objectives. See
"Investment Objective and Policies" in the Statement of Additional Information.
The Fund's investment objective is a fundamental policy and, therefore, may
not be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities as defined in the Investment Company Act of 1940
(the Investment Company Act). Fund policies that are not fundamental may be
modified by the Board of Directors.
The Fund may invest in all types of common stocks and equivalents (such as
convertible debt securities and warrants), preferred stocks, bonds and other
debt obligations, including money market instruments, of foreign and domestic
companies and governments, governmental agencies and international
organizations. The Fund may also invest in stock options, options on debt
securities, options on stock indices, stock index futures and options on stock
index futures.
Although the Fund is not required to maintain any particular geographic or
currency mix of its investments, nor required to maintain any particular
proportion of stocks, bonds or other securities in its portfolio, the Fund, in
view of its investment objective, presently expects to invest its assets
primarily in common stocks of U.S. and non-U.S. issuers. The Fund may, however,
invest substantially or primarily in debt securities of U.S. and non-U.S.
issuers when it appears that the capital appreciation available from investments
in such securities will equal or exceed the capital appreciation available from
investments in equity securities, or when the Fund is temporarily in a defensive
position. The Fund will purchase "investment grade debt including convertible
debt obligations. Investment grade debt obligations are bonds rated within the
four highest quality grades as determined by Moody's Investors Service (Moody's)
(currently Aaa, Aa, A and Baa for bonds, MIGI, MIG2, MIG3 and MIG4 for notes and
P-1 for commercial paper), or Standard & Poor's Ratings Group (S&P) (currently
AAA, AA, A and BBB for bonds, SP-1 and SP-2 for notes and A-1 for commercial
paper), or by another nationally recognized statistical rating organization
(NRSRO) or in unrated securities of equivalent quality. Securities rated Baa by
Moody's or BBB by S&P, although considered to be investment grade, lack
outstanding investment characteristics and, in fact, have speculative
characteristics. Lower rated securities are subject to a greater risk of loss of
principal and interest. Debt securities may be subject to price volatility due
to such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk).
Moreover, should extraordinary market conditions warrant, the Fund may
temporarily be invested primarily in securities of U.S. issuers.
The Fund is intended to provide investors with the opportunity to invest in
a portfolio of securities of companies and governments located throughout the
world. In making the allocation of assets among the various countries and
geographic regions, the Fund's investment adviser ordinarily considers such
factors as prospects for relative economic growth between foreign countries;
expected levels of inflation and interest rates; government policies influencing
business conditions; the range of individual investment opportunities available
to international investors; and other pertinent financial, tax, social,
political and national factors all in relation to the prevailing prices of the
securities in each country or region.
Investments may be made in companies based in (or governments of or within)
the Pacific Basin (such as Japan, Australia, Singapore, Malaysia and Hong Kong)
and Western Europe (such as the United Kingdom, Germany, Switzerland, the
Netherlands, France, Belgium, Spain and Scandinavia), as well as the United
States, Canada and such other areas and countries as the investment adviser may
determine from time to time. The Fund intends to maintain investments in a
minimum of four countries, which may include the United States, but may, from
time to time, invest up to 65% of its assets in companies and governments
located in any one country.
8
<PAGE>
The Fund may invest in securities not listed on securities exchanges. These
securities will generally have an established market (such as the
over-the-counter market), the depth and liquidity of which may vary from time to
time and from security to security. In addition, the Fund may invest to a
limited extent in securities of companies which have been in existence for less
than three years, in securities for which market quotations are not readily
available and in securities of other registered investment companies. See
"Investment Restrictions" in the Statement of Additional Information.
In analyzing companies for investment, the investment adviser ordinarily
looks for one or more of the following characteristics: prospects for
above-average earnings growth per share; high return on invested capital;
healthy balance sheet; sound financial and accounting policies and overall
financial strength; strong competitive advantages; effective research and
product development and marketing; efficient service; pricing flexibility;
strength of management; and general operating characteristics which will enable
the companies to compete successfully in their marketplace all in relation to
the prevailing prices of the securities of such companies.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
The Fund may also engage in various portfolio strategies, including
derivatives, to reduce certain risks of its investments and to attempt to
enhance return. These strategies include the purchase and sale of put and call
options, and the purchase and sale of stock index futures and combinations
thereof. The Manager will use such techniques as market conditions warrant. The
Fund's ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations and there can be no assurance that any
of these strategies will succeed. See "Investment Objective and Policies" in the
Statement of Additional Information. New financial products and risk management
techniques continue to be developed and the Fund may use these new investments
and techniques to the extent consistent with its investment objective and
policies.
Options Transactions
Exchange-Traded Options. The Fund may purchase and write (i.e., sell)
exchange traded put and call options on equity securities, debt securities or
stock indices.
A call option on equity securities gives the purchaser, in exchange for a
premium paid, the right for a specified period of time to purchase the
securities subject to the option at a specified price (the "exercise price" or
"strike price"). The writer of a call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver, depending upon the terms of
the option contract, the underlying securities to the purchaser upon receipt of
the exercise price. When the Fund writes a call option, the Fund gives up the
potential for gain on the underlying securities in excess of the exercise price
of the option during the period that the option is open.
A put option on equity securities gives the purchaser, in return for a
premium, the right, for a specified period of time, to sell the securities
subject to the option to the writer of the put at the specified exercise price.
The writer of the put option, in return for the premium, has the obligation,
upon exercise of the option, to acquire the securities underlying the option at
the exercise price. The Fund as the writer of a put option might, therefore, be
obligated to purchase underlying securities for more than their current market
price.
Options on stock indices are similar to options on equity securities except
that, rather than the right to take or make delivery of stock at a specified
price, an option on a stock index gives the holder the right, in return for a
premium paid, to receive, upon exercise of the option, an amount of cash if the
closing level of the stock index upon which the option is based is greater than,
in the case of a call, or less than, in the case of a put, the exercise price of
the option. The writer of an index option, in return for the premium, is
obligated to pay the amount of cash due upon exercise of the option.
The Fund will write only "covered" options. An option is covered if the
Fund, so long as it is obligated under the option, owns an offsetting position
in the underlying securities or maintains cash, U.S. Government securities or
other liquid high-grade debt obligations with a value sufficient at all times to
cover its obligations in a segregated account. See "Investment Objective and
Policies--Limitations on Purchase and Sale of Stock Options, Options on Stock
Indices and Stock Index Futures" in the Statement of Additional Information.
9
<PAGE>
There is no limitation on the amount of call options the Fund may write.
The Fund may only write covered put options to the extent that cover for such
options does not exceed 25% of the Fund's net assets. The Fund will not purchase
an option if, as a result of such purchase, more than 20% of its total assets
would be invested in premiums for such options.
Over-the-Counter Options. The Fund may also purchase and write (i.e., sell)
put and call options on equity and debt securities and on stock indices in the
over-the-counter market (OTC options). Unlike exchange-traded options, OTC
options are contracts between the Fund and its counterparty without the
interposition of any clearing organization. Thus, the value of an OTC option is
particularly dependent on the financial viability of the OTC counterparty. The
Fund's ability to purchase and write OTC options may be limited by market
conditions, regulatory limits and tax considerations. There are certain risks
associated with investments in OTC options. See "Investment Objective and
Policies--Special Risks of Purchasing OTC Options" in the Statement of
Additional Information.
Stock Index Futures
The Fund may purchase and sell stock index futures which are traded on a
commodities exchange or board of trade for certain hedging and risk management
purposes in accordance with regulations of the Commodity Futures Trading
Commission.
A stock index futures contract is an agreement in which one party agrees to
deliver to another an amount of cash equal to a specific dollar amount times the
difference between a specific stock index at the close of the last trading day
of the contract and the price at which the agreement is made. No physical
delivery of the underlying stocks in the index is made. The Fund may not
purchase or sell stock index futures if, immediately thereafter, more than
one-third of its net assets would be hedged. In addition, except in the case of
a call written and held on the same index, the Fund will write call options on
indices or sell stock index futures only if the amount resulting from the
multiplication of the then current level of the index (or indices) upon which
the options or futures contract(s) is based, the applicable multiplier(s), and
the number of futures or options contracts which would be outstanding would not
exceed one-third of the value of the Fund's net assets. The Fund also may not
purchase or sell stock index futures for risk management purposes if immediately
thereafter the sum of the amount of margin deposits on the Fund's existing
futures positions and premiums paid for such options would exceed 5% of the
liquidation value of the Fund's total assets. The Fund may purchase and sell
stock index futures, without limitation, for bona fide hedging purposes.
The Fund's successful use of stock index futures contracts and options on
indices depends upon its ability to predict the direction of the market
underlying the index and is subject to various additional risks. The correlation
between movements in the price of the stock index future and the price of the
securities being hedged is imperfect and there is a risk that the value of the
securities being hedged may increase or decrease at a greater rate than the
related futures contract, resulting in losses to the Fund. Certain futures
exchanges or boards of trade have established daily limits on the amount that
the price of a futures contract or related options may vary, either up or down,
from the previous day's settlement price. These daily limits may restrict the
Fund's ability to purchase or sell certain futures contracts or related options
on any particular day. In addition, if the Fund purchases futures to hedge
against market advances before it can invest in common stock in an advantageous
manner and the market declines, the Fund might create a loss on the futures
contract. In addition, the ability of the Fund to close out a futures position
or an option depends on a liquid secondary market. There is no assurance that
liquid secondary markets will exist for any particular futures contract or
option at any particular time. See "Investment Objective and Policies" in the
Statement of Additional Information.
The Fund's ability to enter into stock index futures and listed options is
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the Internal Revenue Code), for qualification as a regulated investment
company. See "Taxes" in the Statement of Additional Information.
Risks of Hedging and Return Enhancement Strategies
Participation in the options or futures markets involves investment risks
and transaction costs to which the Fund would not be subject absent the use of
these strategies. If the investment adviser's prediction of movements in the
direction of
10
<PAGE>
the securities markets is inaccurate, the adverse consequences to the Fund may
leave the Fund in a worse position than if such strategies were not used. Risks
inherent in the use of options and stock index futures include (1) dependence on
the investment adviser's ability to predict correctly movements in the direction
of specific securities being hedged or the movement in stock indices; (2)
imperfect correlation between the price of options and stock index futures and
options thereon and movements in the prices of the securities being hedged; (3)
the fact that skills needed to use these strategies are different from those
needed to select portfolio securities; (4) the possible absence of a liquid
secondary market for any particular instrument at any time; (5) the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences; and (6) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do so,
or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions. See "Investment
Objective and Policies" and "Taxes" in the Statement of Additional Information.
Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (typically large
commercial banks) and their customers. A forward contract generally has no
deposit requirements, and no commissions are charged for such trades. See
"Investment Objective and Policies Forward Foreign--Currency Exchange
Contracts" in the Statement of Additional Information.
When the Fund invests in foreign securities, the Fund may enter into
forward contracts in several circumstances to protect the value of its
portfolio. The Fund may not use forward contracts to generate income, although
the use of such contracts may incidentally generate income. There is no
limitation on the value of forward contracts into which the Fund may enter.
However, the Fund's dealings in forward contracts will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency. The Fund will not speculate in forward contracts. The
Fund may not position hedge with respect to a particular currency for an amount
greater than the aggregate market value (determined at the time of making any
sale of a forward contract) of securities held in its portfolio denominated or
quoted in, or currently convertible into, such currency.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when the Fund anticipates the receipt in a
foreign currency of dividends or interest payments on a security which it holds,
the Fund may desire to "lock in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such dividend or interest payment, as the case may be.
By entering into a forward contract for a fixed amount of dollars for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract, for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the portfolio securities of the Fund denominated in such foreign
currency. Requirements under the Internal Revenue Code for qualification as a
regulated investment company may limit the Fund's ability to engage in
transactions in forward contracts. See "Taxes" in the Statement of Additional
Information.
Futures Contracts On Foreign Currencies and Options On Futures Contracts
The Fund may buy and sell futures contracts on foreign currencies and
groups of foreign currencies (futures contracts) such as the European Currency
Unit and related options thereon solely for hedging purposes. A European
Currency Unit is a basket of specified amounts of the currencies of certain
member states of the European Union, a Western European economic cooperative
organization including, inter alia, France, Germany, the Netherlands and the
United Kingdom. The Fund will
11
<PAGE>
engage in transactions in only those futures contracts and options thereon that
are traded on a commodities exchange or a board of trade. A "sale" of a futures
contract means the assumption of a contractual obligation to deliver the
specified amount of foreign currency at a specified price in a specified future
month. A "purchase" of a futures contract means the assumption of a contractual
obligation to acquire the currency called for by the contract at a specified
price in a specified future month. At the time a futures contract is purchased
or sold, the Fund must allocate cash or securities as a deposit payment (initial
margin). Thereafter, the futures contract is valued daily and the payment of
"variation margin" may be required, resulting in the Fund's providing or
receiving cash that reflects any decline or increase in the contract's value, a
process known as "marking to market".
The Fund intends to engage in futures contracts on foreign currencies and
options on these futures transactions as a hedge against changes in the value of
the currencies to which the Fund is subject or to which the Fund expects to be
subject in connection with future purchases, in accordance with the rules and
regulations of the Commodity Futures Trading Commission (the CFTC). The Fund
also intends to engage in such transactions when they are economically
appropriate for the reduction of risks inherent in the ongoing management of the
Fund.
Options On Foreign Currencies
The Fund may purchase and write put and call options on foreign currencies
traded on securities exchanges or boards of trade (foreign and domestic) for
hedging purposes in a manner similar to that in which forward foreign currency
exchange contracts and futures contracts on foreign currencies will be employed.
Options on foreign currencies are similar to options on stock, except that the
Fund has the right to take or make delivery of a specified amount of foreign
currency, rather than stock.
The Fund may purchase and write options to hedge the Fund's portfolio
securities denominated in foreign currencies. If there is a decline in the
dollar value of a foreign currency in which the Fund's portfolio securities are
denominated, the dollar value of such securities will decline even though the
foreign currency value remains the same. See "Special Considerations and Risks"
below. To hedge against the decline of the foreign currency, the Fund may
purchase put options on such foreign currency. If the value of the foreign
currency declines, the gain realized on the put option would offset, in whole or
in part, the adverse effect such decline would have on the value of the
portfolio securities. Alternatively, the Fund may write a call option on the
foreign currency. If the value of the foreign currency declines, the option
would not be exercised and the decline in the value of the portfolio securities
denominated in such foreign currency would be offset in part by the premium the
Fund received for the option.
If, on the other hand, the investment adviser anticipates purchasing a
foreign security and also anticipates a rise in the value of such foreign
currency (thereby increasing the cost of such security), the Fund may purchase
call options on the foreign currency. The purchase of such options could offset,
at least partially, the effects of the adverse movements of the exchange rates.
Alternatively, the Fund could write a put option on the currency and, if the
exchange rates move as anticipated, the option would expire unexercised.
Risks of Investing In Foreign Currency, Forward Contracts, Options and Futures
The Fund's successful use of forward foreign currency exchange contracts,
options on foreign currencies, futures contracts on foreign currencies and
options on such contracts depends upon the investment adviser's ability to
predict the direction of the market and political conditions, which requires
different skills and techniques than predicting changes in the securities
markets generally. For instance, if the value of the securities being hedged
moves in a favorable direction, the advantage to the Fund would be wholly or
partially offset by a loss in the forward contracts or futures contracts.
Further, if the value of the securities being hedged does not change, the Fund's
net income would be less than if the Fund had not hedged since there are
transactional costs associated with the use of these investment practices.
These practices are subject to various additional risks. The correlation
between movements in the price of options and futures contracts and the price of
the currencies being hedged is imperfect. The use of these instruments will
hedge only the currency risks associated with investments in foreign securities,
not market risks. In addition, if the Fund purchases these instruments to hedge
against currency advances before it invests in securities denominated in such
currency and the currency market declines, the Fund might incur a loss on the
futures contract. The Fund's ability to establish and maintain positions will
depend on market liquidity. The ability of
12
<PAGE>
the Fund to close out a futures position or an option depends upon a liquid
secondary market. There is no assurance that liquid secondary markets will exist
for any particular futures contract or option at any particular time. See "Risks
of Transactions in Options" and "Risks of Transactions in Futures Contracts"
under "Investment Objective and Policies" in the Statement of Additional
Information.
Limitations On Options and Futures Contracts
The Fund will not (a) write puts having aggregate exercise prices greater
than 25% of total assets, or (b) purchase (i) put options on foreign currencies
or (ii) call options on foreign currencies if, after any such purchase, the
aggregate premiums paid for such options would exceed 10% of the Fund's total
assets. There are no other limitations on the amount of foreign currencies that
may be hedged, and no limitations on the use of assets to cover options, except
that the aggregate value of the obligations underlying put options will not
exceed 50% of the Fund's assets. Requirements for qualification as a regulated
investment company under the Internal Revenue Code may limit the Fund's ability
to engage in transactions in options on foreign currencies. See "Taxes" in the
Statement of Additional Information.
OTHER INVESTMENT PRACTICES
Repurchase Agreements
The Fund may on occasion enter into repurchase agreements, whereby the
seller of a security agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The repurchase date is usually within a day
or two of the original purchase, although it may extend over a number of months.
The resale price is in excess of the purchase price, reflecting an agreed-upon
rate of return effective for the period of time the Fund's money is invested in
the security. The Fund's repurchase agreements will at all times be fully
collateralized in an amount at least equal to the purchase price including
accrued interest earned on the underlying securities. The instruments held as
collateral are valued daily, and, as the value of instruments declines, the Fund
will require additional collateral. If the seller defaults and the value of the
collateral securing the repurchase agreement declines, the Fund may incur a
loss. The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Mutual Fund Management, Inc. pursuant to an
order of the Securities and Exchange Commission (SEC). The Fund may invest up to
5% of its net assets in illiquid securities including repurchase agreements
which have a maturity of longer than seven days, securities with legal or
contractual restrictions on resale (restricted securities) and securities that
are not readily marketable. Restricted securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933, as amended (the Securities Act),
that have a readily available market are not considered illiquid for purposes of
this limitation. The investment adviser will monitor the liquidity of such
restricted securities under the supervision of the Board of Directors.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the applicable notice period.
Illiquid Securities
The Fund may hold up to 5% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act
and privately placed commercial paper that have a readily available market are
not considered illiquid for purposes of this limitation. The investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Board of Directors. Repurchase agreements subject to demand are deemed to
have a maturity equal to the applicable notice period.
The staff of the SEC has taken the position that purchased over-the-counter
(OTC) options and the assets used as "cover" for written OTC options are
illiquid securities unless the Fund and the counterparty have provided for the
Fund, at the Fund's election, to unwind the OTC option. The exercise of such an
option ordinarily would involve the payment by the Fund of an amount designed to
reflect the counterparty's economic loss from an early termination, but does
allow the Fund to treat the assets used as "cover" as "liquid." See "Investment
Objective and Policies Illiquid Securities" in the Statement of Additional
Information.
Securities Lending
The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral or secures a
letter of credit in favor of the Fund in an amount
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<PAGE>
equal to at least 100%, determined daily, of the market value of the
securities loaned which are maintained in a segregated account pursuant to
applicable regulations. During the time portfolio securities are on loan, the
borrower will pay the Fund an amount equivalent to any dividend or interest paid
on such securities and the Fund may invest the cash collateral and earn
additional income, or it may receive an agreed-upon amount of interest income
from the borrower. The Fund does not presently intend to lend more than 5% of
the value of its total assets and, as a matter of fundamental policy, the Fund
cannot lend more than 10% of the value of its total assets. Loans are subject to
termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. The Fund does not have the right
to vote securities on loan, but would terminate the loan and regain the right to
vote if such vote was considered important with respect to the Fund's investment
in the securities on loan.
The Fund will enter into securities lending transactions only with parties
who meet creditworthiness standards approved by the Board of Directors. The
investment adviser monitors the creditworthiness of such parties under the Board
of Directors' general supervision.
Borrowing
The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated when the loan is made) for temporary, extraordinary or
emergency purposes or for the clearance of transactions. The Fund may pledge up
to 20% of its total assets to secure these borrowings.
Portfolio Turnover
The Fund anticipates that its annual portfolio turnover rate will not
exceed 100% in normal circumstances.
RISKS AND SPECIAL CONSIDERATIONS
Investing in securities of foreign companies and countries involves certain
risks and considerations which are not typically associated with investing in
U.S. Government securities and those of domestic companies. Foreign companies
are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to U.S. companies.
There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than exists in the United
States. Dividends paid by foreign issuers may be subject to withholding and
other foreign taxes which may decrease the net return on such investments as
compared to dividends and interest paid to the Fund by the U.S. Government or by
domestic companies. In addition, there may be the possibility of expropriations,
confiscatory taxation, political, economic or social instability or diplomatic
developments which could affect assets of the Fund held in foreign countries.
There may be less publicly available information about foreign companies
and governments compared to reports and ratings published about U.S. companies.
Foreign securities markets have substantially less volume than the New York
Stock Exchange and securities of some foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Brokerage commissions and
other transaction costs on foreign securities exchanges are generally higher
than in the United States.
Shareholders should be aware that investing in the equity and fixed-income
markets of developing countries involves exposure to economies that are
generally less diverse and mature, and to political systems which can be
expected to have less stability than those of developed countries. Historical
experience indicates that the markets of developing countries have been more
volatile than the markets of developed countries. The risks associated with
investments in foreign securities, described above, may be greater with respect
to investments in developing countries.
The operating expense ratio of the Fund can be expected to be higher than
that of an investment company investing exclusively in domestic securities since
the expenses of the Fund, such as custodial costs, valuation costs and
communication costs, as well as the rate of the management fee (.75 of 1% of the
Fund's average daily net assets), though similar to such expenses of other
international funds, are higher than those costs incurred by other investment
companies.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Such fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities. See "Investment Restrictions" in the
Statement of Additional Information.
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================================================================================
HOW THE FUND IS MANAGED
================================================================================
The Fund has a Board of Directors which, in addition to overseeing the
actions of the Fund's Manager, Subadviser and Distributor, as set forth below,
decides upon matters of general policy. The Fund's Manager conducts and
supervises the daily business operations of the Fund. The Fund's Subadviser
furnishes daily investment advisory services.
For the fiscal year ended October 31, 1995, the Fund's total expenses as a
percentage of average net assets for the Fund's Class A, Class B and Class C
shares were 1.51%, 2.19% and 2.25%, respectively. See "Financial Highlights ".
MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One
Seaport Plaza, New York, New York 10292, is the Manager of the Fund and is
compensated for its services at an annual rate of .75 of 1% of the Fund's
average daily net assets. It was incorporated in May 1987 under the laws of the
State of Delaware. For the fiscal year ended October 31, 1995, the Fund paid
management fees to PMF of .75% of the Fund's average net assets. See "Manager"
in the Statement of Additional Information.
As of November 30, 1995, PMF served as the manager of 36 open-end
investment companies, constituting all of the Prudential Mutual Funds, and as
manager or administrator of 24 closed-end investment companies, with aggregate
assets of approximately $50 billion.
Under the Management Agreement with the Fund, PMF manages the investment
operations of the Fund and also administers the Fund's corporate affairs. See
"Manager" in the Statement of Additional Information.
Under a Subadvisory Agreement between PMF and The Prudential Investment
Corporation (PIC or the Subadviser), PIC furnishes investment advisory services
in connection with the management of the Fund and is reimbursed by PMF for its
reasonable costs and expenses incurred in providing such services. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services.
The current portfolio manager of the Fund is Daniel J. Duane, a Managing
Director and Chief Investment Officer for Global Equity Investments of
Prudential Mutual Fund Investment Management, a unit of The Prudential
Investment Corporation (PIC). Mr. Duane has responsibility for the day-to-day
management of the Fund's portfolio. Mr. Duane has been employed by PIC as a
portfolio manager since 1990. He was formerly with First Investors Asset
Management from 1986 to 1990 as senior portfolio manager and head of global
equity investments. Mr. Duane is a Chartered Financial Analyst. Mr. Duane also
serves as the portfolio manager of the Prudential Series Fund Global Equity
Portfolio, Prudential Global Genesis Fund, Prudential Europe Growth Fund, Inc.
and Prudential Pacific Growth Fund, Inc.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
Consistent with the investment objectives and policies of the Fund, Mr.
Duane evaluates the economic climate in various countries and focuses on
growth-oriented global equity investments. He seeks to identify long-term themes
and changing economic conditions that, in his opinion, will lead to earnings
growth. His portfolio management style can be referred to as "bottom up" in that
his primary focus is on individual stocks. He evaluates historical business
trends in the United States when looking for long-term investment opportunities
abroad (the "rear view mirror" analysis). He generally maintains exposure to
major world stock markets and, under normal market conditions, seeks to keep the
portfolios fully invested. Mr. Duane consults with a team of regional equity
analysts who provide research on existing holdings of the Fund and on potential
acquisitions.
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<PAGE>
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, is a corporation organized under the
laws of the State of Delaware and serves as the distributor of theClass A, Class
B and Class C shares of the Fund. It is an indirect, wholly-owned subsidiary of
Prudential. Prior to January 2, 1996, Prudential Mutual Fund Distributors, Inc.
(PMFD), One Seaport Plaza, New York, New York 10292, served as the distributor
of the Class A shares of the Fund.
Under separate Distribution and Service Plans (the Class A Plan, the Class
B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund under
Rule 12b-1 under the Investment Company Act and separate distribution agreements
(the Distribution Agreements), Prudential Securities (also the Distributor)
incurs the expenses of distributing the Fund's Class A, Class B and Class C
shares. These expenses include commissions and account servicing fees paid to,
or on account of, financial advisers of Prudential Securities and
representatives of Pruco Securities Corporation (Prusec), an affiliated
broker-dealer, commissions and account servicing fees paid to, or on account of,
other broker-dealers or financial institutions (other than national banks) which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of Prudential Securities and Prusec associated with the sale
of Fund shares, including lease, utility, communications and sales promotion
expenses. The State of Texas requires that shares of the Fund may be sold in
that state only by dealers or other financial institutions which are registered
there as broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
Under the Class A Plan, the Fund may pay Prudential Securities for its
distribution-related activities with respect to Class A shares at an annual rate
of up to .30 of 1% of the average daily net assets of the Class A shares. The
Class A Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (ii) total distribution
fees (including the service fee of up to .25 of 1%) may not exceed .30 of 1% of
the average daily net assets of the Class A shares. Prudential Securities has
agreed to limit its distribution-related fees payable under the Class A Plan to
.25 of 1% of the average daily net assets of the Class A shares for the fiscal
year ending October 31, 1996.
Under the Class B Plan, the Fund pays Prudential Securities for its
distribution-related activities with respect to Class B shares at an annual rate
of .75 of 1% of average daily net assets of the Class B shares up to the level
of the average daily net assets of the Fund as of February 26, 1986, plus 1% of
average daily net assets of the Class B shares in excess of such level. Under
the Class C Plan, the Fund pays Prudential Securities for its
distribution-related activities with respect to the Class C shares at an annual
rate of 1% of average daily net assets of Class C shares. The Class B and Class
C Plans provide for the payment to Prudential Securities of (i) an asset-based
sales charge of, with respect to the Class B shares, .50 of 1% of the average
daily net assets of the Class B shares up to the level of the average daily net
assets of the Fund on February 26, 1986, plus .75 of 1% of the average daily net
assets of the Class B shares in excess of such level, and, with respect to the
Class C shares, .75 of 1% of the average daily net assets of the Class C shares
and (ii) a service fee of .25 of 1% of the average daily net assets of the Class
B and Class C shares, respectively. The service fee is used to pay for personal
service and/or the maintenance of shareholders accounts. Prudential Securities
also receives contingent deferred sales charges from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges."
For the fiscal year ended October 31, 1995, the Fund paid distribution
expenses of .25%, 93% and 1.00% of the average net assets of the Class A, Class
B and Class C shares, respectively. The Fund records all payments made under the
Plans as expenses in the calculation of net investment income.
16
<PAGE>
Distribution expenses attributable to the sale of shares of the Fund will
be allocated to each class based upon the ratio of sales of each class to the
sales of all shares of the Fund other than expenses allocable to a particular
class. The distribution fee and sales charge of one class will not be used to
subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related to the
Plan (the Rule 12b-1 Directors), vote annually to continue the Plan. Each Plan
may be terminated at any time by vote of a majority of the Rule 12b-1 Directors
or of a majority of the outstanding shares of the applicable class of the Fund.
The Fund will not be obligated to pay distribution and service fees incurred
under any Plan if it is terminated or not continued.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources to dealers and other persons which
distribute shares of the Fund. Such payment may be calculated by reference to
the net asset value of shares sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See "Distributor" in
the Statement of Additional Information.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting or denying the allegations
asserted against it, PSI consented to the entry of an SEC Administrative Order
which stated that PSI's conduct violated the federal securities laws, directed
PSI to cease and desist from violating the federal securities laws, pay civil
penalties, and adopt certain remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank & Trust Company, an
independent custodian, are separate and distinct from PSI.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant
for the Fund provided that the commissions, fees or other remuneration it
receives are fair and reasonable. See "Portfolio Transactions and Brokerage" in
the Statement of Additional Information.
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<PAGE>
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Its mailing address is P.O. Box
1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc., (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
================================================================================
HOW THE FUND VALUES ITS SHARES
================================================================================
The Fund's net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets, and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. For
valuation purposes, quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The Board of Directors has fixed the
specific time of day for the computation of the Fund's net asset value to be as
of 4:15 P.M., New York time.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. See "Net Asset Value" in the Statement of
Additional Information.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. It is
expected, however, that the NAV of the three classes will tend to converge
immediately after the recording of dividends, if any, which will differ by
approximately the amount of the distribution-related expense accrual
differential among the classes.
================================================================================
HOW THE FUND CALCULATES PERFORMANCE
================================================================================
From time to time the Fund may advertise its total return (including
"average annual" total return and "aggregate" total return) and yield in
advertisements or sales literature. Total return and yield are calculated
separately for Class A, Class B and Class C shares. These figures are based on
historical earnings and are not intended to indicate future performance. The
"total return" shows how much an investment in the Fund would have increased
(decreased) over a specified period of time (i.e., one, five or ten years or
since inception of the Fund) assuming that all distributions and dividends by
the Fund were reinvested on the reinvestment dates during the period and less
all recurring fees. The "aggregate" total return reflects actual performance
over a stated period of time. "Average annual" total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
aggregate total return if performance had been constant over the entire period.
"Average annual" total return smooths out variations in performance and takes
into account any applicable initial or contingent deferred sales charges.
Neither "average annual" total return nor "aggregate" total return takes into
account any federal or state income taxes which may be payable upon redemption.
The "yield" refers to the income generated by an investment in the Fund over a
one-month or 30-day period. This income is then "annualized"; that is, the
amount of income generated by the investment during that 30-day period is
assumed to be generated each
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<PAGE>
30-day period for twelve periods and is shown as a percentage of the
investment. The income earned on the investment is also assumed to be reinvested
at the end of the sixth 30-day period. The Fund may also include comparative
performance information in advertising or marketing the Fund's shares. Such
performance information may include data from Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., other industry publications, business
periodicals, and market indices. The Fund will include performance data for each
class of shares of the Fund offered through this Prospectus in any advertisement
or information including performance data of the Fund. Further performance
information is contained in the Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder Guide--
Shareholder Services Reports to Shareholders."
================================================================================
TAXES, DIVIDENDS AND DISTRIBUTIONS
================================================================================
Taxation of the Fund
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code. Accordingly, the
Fund will not be subject to federal income taxes on its net investment income
and capital gains, if any, that it distributes to its shareholders. See "Taxes"
in the Statement of Additional Information.
The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). In general, PFICs are foreign corporations that own mostly
passive assets or that derive 75% or more of their income from passive sources.
For tax purposes, the Fund's investments in PFICs may subject the Fund to
federal income taxes and a charge in the nature of interest with respect to
certain gains and income realized by the Fund. Under proposed Treasury
regulations, the Fund would be able to avoid such taxes and interest by electing
to "mark-to-market" its investments in PFICs i.e., treat them as sold for fair
market value at the end of the year.
Under the Internal Revenue Code, special rules apply to the treatment of
certain options, futures and forward contracts (Section 1256 contracts). At the
end of each year, such investments held by the Fund will be required to be
"marked to market" for federal income tax purposes; that is, treated as having
been sold at market value. Sixty percent of any gain or loss recognized on these
"deemed sales" and on actual dispositions will be treated as long-term capital
gain or loss, and the remainder will be treated as short-term capital gain or
loss. See "Taxes" in the Statement of Additional Information.
Taxation of Shareholders
Any dividends out of net taxable investment income, together with
distributions of net short-term capital gains (i.e., the excess of net
short-term capital gains over net long-term capital losses) distributed to
shareholders, will be taxable as ordinary income to the shareholder whether or
not reinvested. Any net long-term capital gains (i.e., the excess of net
long-term capital gains over net short-term capital losses) distributed to
shareholders will be taxable as such to the shareholders, whether or not
reinvested and regardless of the length of time a shareholder has owned his or
her shares. The maximum long-term capital gains rate for individuals is 28%. The
maximum long-term capital gains rate for corporate shareholders is currently the
same as the maximum tax rate for ordinary income.
Dividends paid by the Fund will be eligible for the 70% dividends-received
deduction for corporate shareholders to the extent that the Fund's income is
derived from certain dividends received from domestic corporations. Capital
gains distributions are not eligible for the 70% dividends-received deduction.
Under tax proposals included in the budget plan released by the Clinton
Administration on December 7, 1995, the dividends-received deduction allowed to
corporate shareholders would be reduced from 70% to 50% of eligible dividends
and would be subject to additional limitations. It is currently uncertain
whether, when or in what form these proposals or other changes to the
dividends-received deduction will be enacted into law.
The Fund has obtained opinions of counsel to the effect that neither (i)
the conversion of Class B shares into Class A shares nor (ii) the exchange of
Class B or Class C shares for Class A shares constitutes a taxable event for
federal income tax purposes. However, such opinions are not binding on the
Internal Revenue Service.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes. See "Taxes" in the
Statement of Additional Information.
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<PAGE>
Withholding Taxes
Under U.S. Treasury Regulations, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law. Dividends of net
investment income and net short-term capital gains to a foreign shareholder will
generally be subject to U.S. withholding tax at the rate of 30% (or lower treaty
rate).
Investment income received by the Fund from sources within foreign
countries may be subject to foreign income taxes withheld at source. If the Fund
should have more than 50% of the value of its assets invested in securities of
foreign corporations at the close of its taxable year, which is the Fund's
present intention, the Fund may elect to permit its shareholders to take, either
as a credit or as a deduction, their proportionate share of the foreign income
taxes paid, subject to generally applicable limitations.
Dividends and Distributions
The Fund expects to distribute annually to its shareholders all of its net
investment income and any net capital gains. Dividends paid by the Fund with
respect to each class of shares, to the extent any dividends are paid, will be
calculated in the same manner, at the same time, on the same day and will be in
the same amount except that each class will bear its own distribution charges,
generally resulting in lower dividends for Class B and Class C shares.
Distribution of net capital gains, if any, will be paid in the same amount for
each class of shares. See "How the Fund Values its Shares."
Dividends and distributions will be paid in additional Fund shares based on
the NAV of each class on the record date, or such other date as the Board of
Directors may determine, unless the shareholder elects in writing not less than
five business days prior to the record date to receive such dividend and
distributions in cash. Such election should be submitted to Prudential Mutual
Fund Services, Inc., Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. The Fund will notify each shareholder after
the close of the Fund's taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis. If you
hold shares through Prudential Securities, you should contact your financial
adviser to elect to receive dividends and distributions in cash.
When the Fund goes "ex-dividend," the NAV of each class is reduced by the
amount of the dividend or distribution allocable to each class. If you buy
shares just prior to the ex-dividend date (which generally occurs four business
days prior to the record date), the price you pay will include the dividend or
distribution and a portion of your investment will be returned to you as a
taxable distribution. You should, therefore, consider the timing of dividends
and distributions when making your purchases.
================================================================================
GENERAL INFORMATION
================================================================================
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on February 28, 1984. The Fund is
authorized to issue 500 million shares of common stock, $.01 par value per
share, divided into four classes, designated Class A, Class B, Class C and Class
Z common stock, each consisting of 125 million authorized shares. Each class of
common stock represents an interest in the same assets of the Fund and is
identical in all respects except that (i) each class is subject to different
sales charges and distribution and/or service fees which may affect performance,
(ii) each class has exclusive voting rights on any matter submitted to
shareholders that relates solely to its arrangement and has separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class, (iii) each class has a
different exchange privilege, (iv) only Class B shares have a conversion feature
and (v) Class Z shares are offered exclusively for sale to participants in the
PSI 401(k) Plan, an employee benefit plan sponsored by Prudential Securities.
Since Class B and Class C shares generally bear higher distribution expenses
than
20
<PAGE>
Class A shares, the liquidation proceeds to shareholders of those classes are
likely to be lower than to Class A shareholders and to Class Z shareholders
whose shares are not subject to any distribution and/or service fee. In
accordance with the Fund's Articles of Incorporation, the Board of Directors may
authorize the creation of additional series and classes within such series, with
such preferences, privileges, limitations and voting and dividend rights as the
Board of Directors may determine. Currently, the Fund is offering three classes,
designated Class A, Class B and Class C shares. It is anticipated that the Fund
will offer Class Z shares in or about March 1996.
The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. Except for the conversion
feature applicable to the Class B shares, there are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of common
stock of the Fund is entitled to its portion of all of the Fund's assets after
all debt and expenses of the Fund have been paid. The Fund's shares do not have
cumulative voting rights for the election of Directors.
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold annual meetings
of shareholders unless, for example, the election of Directors is required to be
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting upon a vote of 10% of the
Fund's outstanding shares for the purpose of voting on the removal of one or
more Directors or to transact any other business.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the office
of the SEC in Washington, D.C.
================================================================================
SHAREHOLDER GUIDE
================================================================================
HOW TO BUY SHARES OF THE FUND
You may purchase shares of the Fund through Prudential Securities, Prusec
or directly from the Fund through its Transfer Agent, Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent), Attention: Investment Services,
P.O. Box 15020, New Brunswick, New Jersey 08906-5020. The offering price per
share is the NAV next determined following receipt of an order by the Transfer
Agent or Prudential Securities plus a sales charge which, at your option, may be
imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). See "Alternative Purchase Plan"
below. See also "How the Fund Values its Shares."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive stock
certificates.
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. All minimum investment requirements are waived for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors and for purchases made in connection with the "Best Minds" program
sponsored by the Distributor. For purchases through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Services".
21
<PAGE>
The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares ".
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
Purchase By Wire. For an initial purchase of shares of the Fund by wire,
you must first telephone PMFS at (800) 225-1852 (toll-free) to receive an
account number. The following information will be requested: your name, address,
tax identification number, class election, dividend distribution election,
amount being wired and wiring bank. Instructions should then be given by you to
your bank to transfer funds by wire to State Street Bank and Trust Company,
Boston, Massachusetts, Custody and Shareholder Services Division, Attention:
Prudential Global Fund, Inc., specifying on the wire the account number assigned
by PMFS and your name and identifying the sales charge alternative (Class A,
Class B or Class C shares).
If you arrange for receipt by State Street of federal funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Fund as of that day. See "Net Asset Value" in the
Statement of Additional Information.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Global Fund,
Inc., Class A, Class B or Class C shares and your name and individual account
number. It is not necessary to call PMFS to make subsequent purchase orders
utilizing Federal Funds. The minimum amount which may be invested by wire is
$1,000.
ALTERNATIVE PURCHASE PLAN
The Fund offers three classes of shares (Class A, Class B and Class C
shares) which allows you to choose the most beneficial sales charge structure
for your individual circumstances given the amount of the purchase, the length
of time you expect to hold the shares and other relevant circumstances
(Alternative Purchase Plan).
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information
------------------------------------- ------------------------ ---------------------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of 5% of .30 of 1% (Currently Initial sales charge waived or reduced
the public offering price being charged at a rate for certain purchases
of .25 of 1%)
Class B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
Class C Maximum CDSC of 1% of the lesser 1% Shares do not convert to another class
of the amount invested or the
redemption proceeds on redemptions
made within one year of purchase
</TABLE>
The three classes of shares represent an interest in the same portfolio of
investments of the Funds and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except as
noted under the heading "General Information--Description of Common Stock"), and
(iii) only Class B shares have a conversion feature. The three classes also have
separate exchange privileges. See "How to Exchange Your Shares" below. The
income attributable to each class and the dividends payable on the shares of
each class will be reduced by the amount of the distribution fee of each class.
Class B and Class C shares bear the expenses of a higher distribution fee which
will generally cause them to have higher expense ratios and to pay lower
dividends than the Class A shares.
22
<PAGE>
Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C shares.
In selecting a purchase alternative, you should consider, among other
things, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) that Class B shares automatically convert
to Class A shares approximately seven years after purchase (see "Conversion
Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:
If you intend to hold your investment in the Fund for less than 7 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales charge of 5% and Class B shares
are subject to a CDSC of 5% which declines to zero over a 6 year period, you
should consider purchasing Class C shares over either Class A or Class B shares.
If you intend to hold your investment for 7 years or more and do not
qualify for a reduced sales charge on Class A shares, since Class B shares
convert to Class A shares approximately 7 years after purchase and because all
of your money would be invested initially in the case of Class B shares, you
should consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B and Class C shares for the higher
cumulative annual distribution-related fee on those shares to exceed the initial
sales charge plus cumulative annual distribution-related fee on Class A shares.
This does not take into account the time value of money, which further reduces
the impact of the higher Class B or Class C distribution-related fee on the
investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or redemptions when the CDSC is applicable.
All purchases of $1 million or more, either as part of a single investment
or under Rights of Accumulation or Letters of Intent, must be for Class A
shares. See "Reduction and Waiver of Initial Sales Charges" below.
Class A Shares
The offering price of Class A shares for investors choosing the initial
sales charge alternative is the next determined NAV plus a sales charge
(expressed as a percentage of the offering price and of the amount invested) as
shown in the following table:
<TABLE>
<CAPTION>
Sales Charge As Sales Charge As Dealer Concession
Percentage of Percentage of Net as Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
------------------ -------------- --------------- --------------
<S> <C> <C> <C>
$0 to $24,999 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50 4.71 4.25
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.25 3.36 3.00
$250,000 to $499,999 2.50 2.56 2.40
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 and above None None None
</TABLE>
Selling dealers may be deemed to be underwriters, as that term is defined
in the Securities Act.
23
<PAGE>
Reduction and Waiver of Initial Sales Charges. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction. See "Purchase and Redemption of Fund
Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares" in the
Statement of Additional Information.
Benefit Plans. Class A shares may be purchased at NAV, without payment of
an initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the Internal
Revenue Code (Benefit Plans), provided that the plan has existing assets of at
least $1 million invested in shares of Prudential Mutual Funds (excluding money
market funds other than those acquired pursuant to the exchange privilege) or
1,000 eligible employees or participants. In the case of Benefit Plans whose
accounts are held directly with the Transfer Agent or Prudential Securities and
for which the Transfer Agent or Prudential Securities does individual account
record keeping (Direct Account Benefit Plans) and Benefit Plans sponsored by PSI
or its subsidiaries (PSI or Subsidiary Prototype Benefit Plans), Class A shares
may be purchased at NAV by participants who are repaying loans made from such
plans to the participant.
PruArray Plans. Class A shares may be purchased at NAV by certain
retirement and deferred compensation plans, qualified or non-qualified under the
Internal Revenue Code of 1986, as amended, (the Code ), including pension,
profit-sharing, stock-bonus or other employee benefit plans under Section 401 of
the Code and deferred compensation and annuity plans under Sections 457 and
403(b)(7) of the Code that participate in the Transfer Agent's PruArray Program
(a benefit plan record keeping service) (hereafter referred to as a PruArray
Plan); provided (i) that the plan has at least $1 million in existing assets or
1,000 eligible employees or participants and (ii) that Prudential Mutual Funds
constitute at least one-half of the plan's investment options. The term
"existing assets" for this purpose includes stock issued by a PruArray Plan
sponsor and shares of non-money market Prudential Mutual Funds and shares of
certain unaffiliated non-money market mutual funds that participate in the
PruArray Program (Participating Funds). "Existing assets" also include shares of
money market funds acquired by exchange from a Participating Fund.
Special Rules Applicable to Retirement Plans. After a Benefit Plan or
PruArray Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.
Other Waivers. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
Directors/Trustees and officers of the Prudential Mutual Funds (including the
Fund), (b) former Directors/Trustees of the Prudential Mutual Funds (including
the Fund), (c) employees of Prudential Securities and PMF and their subsidiaries
and members of the families of such persons who maintain an "employee related"
account at Prudential Securities or the Transfer Agent, (d) employees and
special agents of Prudential and its subsidiaries and all persons who have
retired directly from active service with Prudential or one of its subsidiaries,
(e) registered representatives and employees of dealers who have entered into a
selected dealer agreement with Prudential Securities provided that purchases at
NAV are permitted by such person's employer and (f) investors who have a
business relationship with a financial adviser who joined Prudential Securities
from another investment firm, provided that (i) the purchase is made within 180
days of the commencement of the financial adviser's employment at Prudential
Securities, or within one year in the case of Benefit Plans, (ii) the purchase
is made with proceeds of a redemption of shares of any open-end fund sponsored
by the financial adviser's previous employer (other than a money market fund or
other no-load fund which imposes a distribution or service fee of .25 of 1% or
less) and (iii) the financial adviser served as the client's broker on the
previous purchases.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class
A Shares" in the Statement of Additional Information.
Class B and Class C Shares
The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class B
and Class C shares may be subject to a CDSC. See "How to Sell Your Shares--
Contingent Deferred Sales Charges."
24
<PAGE>
HOW TO SELL YOUR SHARES
You can redeem shares of the Fund at any time for cash at the NAV next
determined after the redemption request is received in proper form by the
Transfer Agent or Prudential Securities. See "How The Fund Values Its Shares."
In certain cases, however, redemption proceeds will be reduced by the amount of
any applicable contingent deferred sales charge, as described below. See
"Contingent Deferred Sales Charges" below.
If you hold shares of the Fund through Prudential Securities, you must
redeem your shares by contacting your Prudential Securities financial adviser.
If you hold shares in non-certificate form, a written request for redemption
signed by you exactly as the account is registered is required. If you hold
certificates, the certificates signed in the name(s) shown on the face of the
certificates, must be received by the Transfer Agent in order for the redemption
request to be processed. If redemption is requested by a corporation,
partnership, trust or fiduciary, written evidence of authority acceptable to the
Transfer Agent must be submitted before such request will be accepted. All
correspondence and documents concerning redemptions should be sent to the Fund
in care of its Transfer Agent, Prudential Mutual Fund Services, Inc., Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Prudential Preferred Financial Services offices.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent of the certificate and/or written
request except as indicated below. If you hold shares through Prudential
Securities, payment for shares presented for redemption will be credited to your
Prudential Securities account, unless you indicate otherwise. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the SEC, by
order, so permits; provided that applicable rules and regulations of the SEC
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.
Payment for redemption of recently purchased shares will be delayed until
the Fund or its Transfer Agent has been advised that the purchase check has been
honored, up to 10 calendar days from the time of receipt of the purchase check
by the Transfer Agent. Such delay may be avoided by purchasing shares by wire or
by certified or official bank check.
Redemption In Kind. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. See "How The Fund Values Its Shares". If your
shares are redeemed in kind, you would incur transaction costs in converting the
assets into cash. The Fund, however, has elected to be governed by Rule 18f-1
under the Investment Company Act, under which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90-day period for any one shareholder.
Involuntary Redemption. In order to reduce expenses of the Fund, the Board
of Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No contingent deferred sales charge
will be imposed on any such involuntary redemption.
90-Day Repurchase Privilege. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the net asset
value next determined after the order is
25
<PAGE>
received, which must be within 90 days after the date of the redemption. Any
contingent deferred sales charge or CDSC paid in connection with such redemption
will be credited (in shares) to your account. (If less than a full repurchase is
made, the credit will be on a pro rata basis.) You must notify the Fund's
Transfer Agent, either directly or through Prudential Securities, at the time
the repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. See "Contingent Deferred Sales Charge"
below. Exercise of the repurchase privilege will generally not affect federal
tax treatment of any gain realized upon redemption. However, if the redemption
was made within a 30 day period of the repurchase and if the redemption resulted
in a loss, some or all of the loss, depending on the amount reinvested, may not
be allowed for federal income tax purposes.
Contingent Deferred Sales Charges
Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid to
you. The CDSC will be imposed on any redemption by you which reduces the current
value of your Class B or Class C shares to an amount which is lower than the
amount of all payments by you for shares during the preceding six years, in the
case of Class B shares, and one year, in the case of Class C shares. A CDSC will
be applied on the lesser of the original purchase price or the current value of
the shares being redeemed. Increases in the value of your shares or shares
acquired through reinvestment of dividends or distributions are not subject to a
CDSC. The amount of any contingent deferred sales charge will be paid to and
retained by the Distributor. See "How the Fund is Managed--Distributor" and
"Waiver of the Contingent Deferred Sales Charges--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of your shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. The CDSC will be calculated from the first day of the month after
the initial purchase, excluding the time shares were held in a money market
fund. See "How to Exchange Your Shares."
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
Contingent Deferred Sales
Charge as a Percentage of
Year Since Purchase Dollars Invested or
Payment Made Redemption Proceeds
------------ -------------------
First ........................................ 5.0%
Second ....................................... 4.0%
Third ........................................ 3.0%
Fourth ....................................... 2.0%
Fifth ........................................ 1.0%
Sixth ........................................ 1.0%
Seventh ...................................... None
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value above the total
amount of payments for the purchase of Fund shares made during the preceding six
years (five years for Class B shares purchased prior to January 22, 1990);
then of amounts representing the cost of shares held beyond the applicable CDSC
period, and finally, of amounts representing the cost of shares held for the
longest period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your
26
<PAGE>
investment. Assuming at the time of the redemption the NAV had appreciated
to $12 per share, the value of your Class B shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the value of the reinvested
dividend shares and the amount which represents appreciation ($260). Therefore,
$240 of the $500 redemption proceeds ($500 minus $260) would be charged at a
rate of 4% (the applicable rate in the second year after purchase) for a total
CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the
gain or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
Waiver of the Contingent Deferred Sales Charges--Class B Shares. The CDSC
will be waived in the case of a redemption following the death or disability of
a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), or a trust, at the time of death or initial
determination of disability, provided that the shares were purchased prior to
death or disability.
The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a
tax-deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59 1/2; and (iii) a tax-free return of an
excess contribution or plan distributions following the death or disability of
the shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service (i.e.,
following voluntary or involuntary termination of employment or following
retirement). Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan, unless such
redemptions otherwise qualify for a waiver as described above.
In the case of Direct Account and PSI or Subsidiary Prototype Benefit
Plans, the CDSC will also be waived on the redemptions which represent
borrowings from such plans. Shares purchased with amounts used to repay a loan
from such plans on which a CDSC was not previously deducted will thereafter be
subject to a CDSC without regard to the time such amounts were previously
invested. In the case of a 401(k) plan, the CDSC will also be waived upon the
redemption of shares purchased with amounts used to repay loans made from the
account to the participant and from which a CDSC was previously deducted.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to waiver
of the CDSC and provide the Transfer Agent with such supporting documentation as
it may deem appropriate. The waiver will be granted subject to confirmation of
your entitlement. See "Purchase and Redemption of Fund Shares--Waiver of the
Contingent Deferred Sales Charge "Class B Shares" in the Statement of Additional
Information.
A quantity discount may apply to redemptions of Class B shares purchased
prior to August 1, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to August 1, 1994" in the Statement of
Additional Information.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
The first conversion of Class B shares occurred in February 1995, when the
conversion feature was first implemented.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares
27
<PAGE>
then in your account that were acquired through the automatic reinvestment
of dividends and other distributions will convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 (47.62%) multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus, although
the aggregate dollar value will be the same, you may receive fewer Class A
shares than Class B shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year will not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase of
such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code and
(ii) that the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If the conversions are suspended,
Class B shares of the Fund will continue to be subject, possibly indefinitely,
to their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
As a shareholder of the Fund you have an exchange privilege with certain
other Prudential Mutual Funds, including one or more specified money market
funds, subject to the minimum investment requirement of such funds. Class A,
Class B and Class C shares may be exchanged for Class A, Class B and Class C
shares, respectively, of another fund on the basis of the relative NAV. No sales
charge will be imposed at the time of the exchange. Any applicable CDSC payable
upon the redemption of shares exchanged will be calculated from the first day of
the month after the initial purchase, excluding the time shares were held in a
money market fund. Class B and Class C shares may not be exchanged into money
market funds other than Prudential Special Money Market Fund. For purposes of
calculating the seven year holding period applicable to the Class B conversion
feature, the time period during which Class B shares were held in a money market
fund will be excluded. See "Conversion Feature--Class B Shares" above. An
exchange will be treated as a redemption and purchase for tax purposes. See
"Shareholder Investment Account--Exchange Privilege" in the Statement of
Additional Information.
In order to exchange shares by telephone, you must authorize the telephone
exchange privilege on your initial application form or by written notice to the
Transfer Agent and hold shares in non-certificate form. Thereafter, you may call
the Fund at 1 (800) 225-1852 to execute a telephone exchange of shares on
weekdays, except holidays, between the hours of 8:00 a.m. and 6:00 p.m., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. Neither the Fund nor its agents will be liable for any loss,
liability or cost which results from acting upon instructions reasonably
believed to be genuine under the foregoing procedures. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after the
request is received in good order. The Exchange Privilege is available only in
states where the exchange may legally be made.
28
<PAGE>
If you hold shares through Prudential Securities or through a dealer which
has entered into a selected dealer agreement with the Fund's Distributor, you
must exchange your shares by contacting your financial adviser.
If you hold certificates, the certificates, signed in the name(s) shown on
the face of the certificates must be returned in order for the shares to be
exchanged. See "How to Sell Your Shares" above.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange
of shares may be difficult to implement and shareholders should make exchanges
by mail by writing to Prudential Mutual Fund Services, Inc., at the address
noted above.
Special Exchange Privilege. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. See "Alternative
Purchase Plan Class A Shares Reduction and Waiver of Initial Sales Charges"
above. Under this exchange privilege, amounts representing any Class B and Class
C shares (which are not subject to a CDSC) held in such a shareholder's account
will be automatically exchanged for Class A shares on a quarterly basis, unless
the shareholder elects otherwise. Eligibility for this exchange privilege will
be calculated on the business day prior to the date of the exchange. Amounts
representing Class B or Class C shares which are not subject to a CDSC include
the following: (1) amounts representing Class B or Class C shares acquired
pursuant to the automatic reinvestment of dividends and distributions, (2)
amounts representing the increase in the net asset value above the total amount
of payments for the purchase of Class B or Class C shares and (3) amounts
representing Class B or Class C shares held beyond the applicable CDSC period.
Class B and Class C shareholders must notify the Transfer Agent either directly
or through Prudential Securities or Prusec that they are eligible for this
special exchange privilege.
The Exchange Privilege may be modified or terminated at any time on 60
days' notice.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Fund, you
can take advantage of the following additional services and privileges:
Automatic Reinvestment of Dividends and/or Distributions Without Sales
Charge. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.
Automatic Savings Accumulation Plan (ASAP). Under ASAP you may make regular
purchases of the Fund's shares in amounts as little as $50 via an automatic
debit to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec representative or the Transfer
Agent directly.
Best Minds Program. The Distributor sponsors the Best Minds program
pursuant to which the total dollar amount of a client's investment in the
program will be allocated equally among shares of the Fund and other Prudential
Mutual Funds. For more information about this program, you should contact your
Prudential Securities financial adviser or Prusec representative.
Tax Deferred Retirement Plans. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
29
<PAGE>
Systematic Withdrawal Plan. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares Contingent Deferred Sales Charges." See also "Shareholder Investment
Account Systematic Withdrawal Plan" in the Statement of Additional Information.
Reports to Shareholders. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses the Fund will provide one annual report and semi-annual shareholder
report and annual prospectus per household. You may request additional copies of
such reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, NY 10292. In addition, monthly unaudited financial data is
available upon request from the Fund.
Shareholder Inquiries. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at 1-800-225-1852 or,
from outside the U.S.A., at 1-908-417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
30
<PAGE>
================================================================================
THE PRUDENTIAL MUTUAL FUND FAMILY
================================================================================
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Fund at 1
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
- --------------------------------------------------------------------------------
=============================
Taxable Bond Funds
=============================
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
=============================
Tax-Exempt Bond Funds
=============================
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
=============================
Global Funds
=============================
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Global Assets Portfolio
Limited Maturity Portfolio
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Global Utility Fund, Inc.
=============================
Equity Funds
=============================
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential Jennison Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
=============================
Money Market Funds
=============================
o Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
- --------------------------------------------------------------------------------
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
================================================================================
TABLE OF CONTENTS
Page
----
FUND HIGHLIGHTS ........................................................ 2
Risk Factors and Special Characteristics ............................. 2
FUND EXPENSES .......................................................... 4
FINANCIAL HIGHLIGHTS ................................................... 5
HOW THE FUND INVESTS ................................................... 8
Investment Objective and Policies .................................... 8
Hedging and Return Enhancement Strategies ............................ 9
Other Investment Practices ........................................... 13
Risks and Special Considerations ..................................... 14
Investment Restrictions .............................................. 14
HOW THE FUND IS MANAGED ................................................ 15
Manager .............................................................. 15
Distributor .......................................................... 16
Portfolio Transactions ............................................... 17
Custodian and Transfer and Dividend Disbursing
Agent .............................................................. 18
HOW THE FUND VALUES ITS SHARES ......................................... 18
HOW THE FUND CALCULATES PERFORMANCE .................................... 18
TAXES, DIVIDENDS AND DISTRIBUTIONS ..................................... 19
GENERAL INFORMATION .................................................... 20
Description of Common Stock .......................................... 20
Additional Information ............................................... 21
SHAREHOLDER GUIDE ...................................................... 21
How to Buy Shares of the Fund ........................................ 21
Alternative Purchase Plan ............................................ 22
How to Sell Your Shares .............................................. 25
How to Exchange Your Shares .......................................... 28
Shareholder Services ................................................. 29
THE PRUDENTIAL MUTUAL FUND FAMILY ...................................... A-1
================================================================================
115A 444010J
-----------------------------------------------
Class A: 744332107
CUSIP NOS.: Class B: 744332206
Class C: 744332305
-----------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS January 2, 1996
- --------------------------------------------------------------------------------
Prudential
Global Fund, Inc.
-----------------
Prudential Mutual Funds
BUILDING YOUR FUTURE [LOGO]
ON OUR STRENGTH(SM)
<PAGE>
PRUDENTIAL GLOBAL FUND, INC.
Statement of Additional Information
January 2, 1996
Prudential Global Fund, Inc. (the Fund) is an open-end, diversified
management investment company. Its investment objective is to seek long-term
growth of capital, with income as a secondary objective. The Fund will seek to
achieve its objective through investment in a diversified portfolio of
securities which will consist of marketable securities of U.S. and non-U.S.
issuers. The Fund may invest in all types of common stocks and equivalents (such
as convertible debt securities and warrants), preferred stocks, bonds and other
debt obligations, including money market instruments, of foreign and domestic
companies and governments, governmental agencies and international
organizations. There can be no assurance that the Fund's investment objective
will be achieved. See "Investment Objective and Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated January 2, 1996, a copy of
which may be obtained from the Fund at the address noted above.
TABLE OF CONTENTS
Cross-reference
to page in
Page Prospectus
---- ---------------
Investment Objective and Policies ................. B-2 8
Investment Restrictions ........................... B-10 14
Directors and Officers ............................ B-11 15
Manager ........................................... B-14 15
Distributor ....................................... B-16 15
Net Asset Value ................................... B-18 18
Portfolio Transactions and Brokerage .............. B-18 17
Purchase and Redemption of Fund Shares ............ B-20 21
Shareholder Investment Account .................... B-22 29
Performance Information ........................... B-26 18
Taxes ............................................. B-28 19
Custodian, Transfer and Dividend Disbursing
Agent and Independent Accountants ............... B-30 18
Financial Statements .............................. B- --
Independent Auditors' Report ...................... B- --
Appendix--General Investment Information .......... App-
Appendix--Historical Performance Data ............. App-
================================================================================
MF115B
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term growth of
capital, with income as a secondary objective. The Fund will seek to achieve its
objective through investment in a diversified portfolio of securities which will
consist of marketable securities of U.S. and non-U.S. issuers. The Fund may
invest in all types of common stocks and equivalents (such as convertible debt
securities and warrants), preferred stocks, bonds and other debt
obligations,including money market instruments, of foreign and domestic
companies and governments, governmental agencies and international
organizations. The Fund has no fixed policy with respect to portfolio turnover;
however, it is anticipated that the Fund's annual portfolio turnover rate will
not normally exceed 100%,though the Fund is not restricted from investing in
short-term obligations. There can be no assurance that the Fund's investment
objective will be achieved. For a further description of the Fund's investment
objective and policies, see "How the Fund Invests--Investment Objective and
Policies" in the Prospectus.
Limitations on Purchase and Sale of Options, Options on Stock Indices and Stock
Index Futures
The Fund may write put and call options only if they are covered, and such
options must remain covered so long as the Fund is obligated as a writer. The
Fund will not write put options on indices. The Fund has undertaken with certain
state securities commissions that, so long as shares of the Fund are registered
in those states, it will not (a) write puts having aggregate exercise prices
greater than 25% of total net assets; or (b) purchase (i) put options on stocks
not held in the Fund's portfolio, (ii) put options on stock indices or (iii)
call options on stocks or stock indices if, after any such purchase, the
aggregate premiums paid for such options would exceed 20% of the Fund's total
net assets.
Call Options. The Fund may, from time to time, write call options on its
portfolio securities. The Fund may write only call options which are "covered,"
meaning that the Fund either owns the underlying security or has an absolute and
immediate right to acquire that security, without additional cash consideration,
upon conversion or exchange of other securities currently held in its portfolio.
In addition, the Fund will not permit the call to become uncovered prior to the
expiration of the option or termination through a closing purchase transaction
as described below. If the Fund writes a call option, the purchaser of the
option has the right to buy (and the Fund has the obligation to sell) the
underlying security at the exercise price throughout the term of the option. The
amount paid to the Fund by the purchaser of the option is the "premium." The
Fund's obligation to deliver the underlying security against payment of the
exercise price would terminate either upon expiration of the option or earlier
if the Fund were to effect a "closing purchase transaction" through the purchase
of an equivalent option on an exchange. There can be no assurance that a closing
purchase transaction can be effected.
The Fund would not be able to effect a closing purchase transaction after
it had received notice of exercise. In order to write a call option, the Fund is
required to comply with the rules of The Options Clearing Corporation, with
respect to options traded on a United States exchange, and the various exchanges
with respect to collateral requirements. The Fund may not purchase call options
except in connection with a closing purchase transaction. It is possible that
the cost of effecting a closing purchase transaction may be greater than the
premium received by the Fund for writing the option.
Generally, the investment adviser intends to write listed covered call
options during periods when it anticipates declines in the market values of
portfolio securities because the premiums received may offset to some extent the
decline in the Fund's net asset value occasioned by such declines in market
value. Except as part of the "sell discipline" described below, the investment
adviser will generally not write listed covered call options when it anticipates
that the market values of the Fund's portfolio securities will increase.
One reason for the Fund to write call options is as part of a "sell
discipline." If the investment adviser decides that a portfolio security would
be overvalued and should be sold at a certain price higher than the current
price, the Fund could write an option on the security at the higher price.
Should the security subsequently reach that price and the option be exercised,
the Fund would, in effect, have increased the selling price of that security,
which it would have sold at that price in any event, by the amount of the
premium. In the event the market price of the security declined and the option
were not exercised, the premium would offset all or some portion of the decline.
It is possible that the price of the security could increase beyond the exercise
price; in that event, the Fund would forego the opportunity to sell the security
at that higher price.
In addition, call options may be used as part of a different strategy in
connection with sales of portfolio securities. If, in the judgment of the
investment adviser, the market price of a security is overvalued and it should
be sold, the Fund may elect to write a call option with an exercise price
substantially below the current market price. As long as the value of the
underlying security remains above the exercise price during the term of the
option, the option will, in all probability, be exercised, in which case the
Fund will be required to sell the security at the exercise price. If the sum of
the premium and the exercise price exceeds the market price of the security at
the time the call option is written, the Fund would, in effect, have increased
the selling price of the security. The Fund would not write a call option in
these circumstances if the sum of the premium and the exercise price were less
than the current market price of the security.
Put Options. The Fund may also write listed put options. If the Fund
writes a put option, it is obligated to purchase a given security at a specified
price at any time during the term of the option.
B-2
<PAGE>
Writing listed put options is a useful portfolio investment strategy when
the Fund has cash or other reserves available for investment as a result of
sales of Fund shares or, more importantly, because the investment adviser
believes a more defensive and less fully invested position is desirable in light
of market conditions. If the Fund wishes to invest its cash or reserves in a
particular security at a price lower than current market value, it may write a
put option on that security at an exercise price which reflects the lower price
it is willing to pay. The buyer of the put option generally will not exercise
the option unless the market price of the underlying security declines to a
price near or below the exercise price. If the Fund writes a listed put, the
price of the underlying security declines and the option is exercised, the
premium, net of transaction charges, will reduce the purchase price paid by the
Fund for the security. The price of the security may decline by an amount in
excess of the premium, in which event the Fund would have foregone an
opportunity to purchase the security at a lower price.
If, prior to the exercise of a put option, the investment adviser
determines that it no longer wishes to invest in the security on which the put
option had been written, the Fund may be able to effect a closing purchase
transaction on an exchange by purchasing a put option of the same series as the
one which it has previously written. The cost of effecting a closing purchase
transaction may be greater than the premium received on writing the put option
and there is no guarantee that a closing purchase transaction can be effected.
At the time a put option is written, the Fund will be required to
establish, and will maintain until the put is exercised or has expired, a
segregated account with its custodian consisting of cash, short-term U. S.
Government securities or other high-grade short-term debt obligations equal in
value to the amount the Fund will be obligated to pay upon exercise of the put
option.
Stock Index Options. Except as described below, the Fund will write call
options on indices only if on such date it holds a portfolio of stocks at least
equal to the value of the index times the multiplier times the number of
contracts. When the Fund writes a call option on a broadly-based stock market
index, the Fund will segregate or put into escrow with its Custodian, or pledge
to a broker as collateral for the option, cash, U.S. Government securities,
liquid high-grade debt securities or a portfolio of stocks substantially
replicating the movement of the index, in the judgment of the Fund's investment
adviser, with a market value at the time the option is written of not less than
100% of the current index value times the multiplier times the number of
contracts.
If the Fund has written an option on an industry or market segment index,it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, at least ten "qualified securities," which are
securities of an issuer in such industry or market segment, with a market value
at the time the option is written of not less than 100% of the current index
value times the multiplier times the number of contracts. Such securities will
include stocks which represent at least 50% of the weighting of the industry or
market segment index and will represent at least 50% of the Fund's holdings in
that industry or market segment. No individual security will represent more than
25% of the amount so segregated, pledged or escrowed. If at the close of
business on any day the market value of such qualified securities so segregated,
escrowed or pledged falls below 100% of the current index value times the
multiplier times the number of contracts, the Fund will so segregate, escrow or
pledge an amount in cash, Treasury bills or other high-grade short-term
obligations equal in value to the difference. In addition, when the Fund writes
a call on an index which is in-the-money at the time the call is written, the
Fund will segregate with its Custodian or pledge to the broker as collateral
cash, short-term U.S. Government securities or other high-grade short-term debt
obligations equal in value to the amount by which the call is in-the-money times
the multiplier times the number of contracts. Any amount segregated pursuant to
the foregoing sentence may be applied to the Fund's obligation to segregate
additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the multiplier
times the number of contracts. A "qualified security" is an equity security
which is listed on a national securities exchange or listed on the National
Association of Securities Dealers Automated Quotation System against which the
Fund has not written a stock call option and which has not been hedged by the
Fund by the sale of stock index futures. However, if the Fund holds a call on
the same index as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash, Treasury bills or other high-grade short-term obligations in a
segregated account with its Custodian, it will not be subject to the
requirements described in this paragraph.
Stock Index Futures. The Fund will engage in transactions in stock index
futures contracts as a hedge against changes resulting from market conditions in
the values of securities which are held in the Fund's portfolio or which it
intends to purchase. The Fund will engage in such transactions when they are
economically appropriate for the reduction of risks inherent in the ongoing
management of the Fund. The Fund may not purchase or sell stock index futures
if, immediately thereafter, more than one-third of its net assets would be
hedged and, in addition, except as described above in the case of a call written
and held on the same index, will write call options on indices or sell stock
index futures only if the amount resulting from the multiplication of the then
current level of the index (or indices) upon which the option or future
contract(s) is based, the applicable multiplier(s), and the number of futures or
options contracts which would be outstanding, would not exceed one-third of the
value of the Fund's net assets. The Fund also may not purchase or sell stock
index futures for risk management purposes if, immediately thereafter, the sum
of the amount of margin deposits on the Fund's existing futures positions and
premiums paid for such options would exceed 5% of the liquidation value of the
Fund's total assets after taking into account unrealized profits and unrealized
losses on any such
B-3
<PAGE>
contracts, provided, however, that in the case of an option
that is in-the-money, the in-the-money amount may be excluded in computing such
5%. The above restriction does not apply to the purchase and sale of stock index
futures for bona fide hedging purposes. In instances involving the purchase of
stock index futures contracts by the Fund, an amount of cash, short-term U.S.
Government securities or other high-grade short-term debt obligations, equal to
the market value of the futures contracts, will be deposited in a segregated
account with the Fund's Custodian and/or in a margin account with a broker to
collateralize the position and thereby insure that the use of such futures is
unleveraged.
Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act of 1940, as amended (the Investment
Company Act), are exempt from the definition of "commodity pool operator,"
subject to compliance with certain conditions. The exemption is conditioned upon
a requirement that all of the Fund's commodity futures or commodity options
transactions constitute bona fide hedging transactions within the meaning of the
CFTC's regulations. The Fund will use stock index futures and options on futures
as described herein in a manner consistent with this requirement. The Fund may
also enter into commodity futures or commodity options contracts for income
enhancement and risk management purposes if the aggregate initial margin and
option premiums do not exceed 5% of the liquidation value of the Fund's total
assets.
Risks of Transactions in Stock Options. Writing of options involves the
risk that there will be no market in which to effect a closing transaction. An
option position may be closed out only on an exchange which provides a secondary
market for an option of the same series. Although the Fund will generally write
only those options for which there appears to be an active secondary
market,there is no assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time, and for some options
no secondary market on an exchange may exist. If the Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.
Risks of Options on Indices. The Fund's purchase and sale of options on
indices will be subject to risks described above under "Risks of Transactions in
Stock Options." In addition, the distinctive characteristics of options on
indices create certain risks that are not present with stock options.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of stock prices in the stock market generally or in
an industry or market segment rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on indices would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which could
result in substantial losses to the Fund. It is the Fund's policy to purchase or
write options only on indices which include a number of stocks sufficient to
minimize the likelihood of a trading halt in the index.
Trading in index options commenced in April 1983 with the S&P 100 option
(formerly called the CBOE 100). Since that time a number of additional index
option contracts have been introduced including options on industry indices.
Although the markets for certain index option contracts have developed rapidly,
the markets for other index options are still relatively illiquid. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop in all index option contracts. The Fund will not
purchase or sell any index option contract unless and until, in the investment
adviser's opinion, the market for such options has developed sufficiently that
such risk in connection with such transactions is no greater than such risk in
connection with options on stocks.
Special Risks of Writing Calls on Indices. Because exercises of index
options are settled in cash, a call writer such as the Fund cannot determine the
amount of its settlement obligations in advance and, unlike call writing on
specific stocks, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities.
However, the Fund will write call options on indices only under the
circumstances described above under "Limitations on Purchase and Sale of
Options, Options on Stock Indices, Stock Index Futures and Options on Stock
Index Futures."
Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on the
call which is not completely offset by movements in the price of the Fund's
portfolio. It is also possible that the index may rise when the Fund's portfolio
of stocks does not rise. If this occurred, the Fund would experience a loss on
the call which is not offset by an increase in the value of its portfolio and
might also experience a loss in its portfolio. However, because the value of a
diversified portfolio will, over time, tend to move in the same direction as the
market, movements in the value of the Fund in the opposite direction as the
market would be likely to occur for only a short period or to a small degree.
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Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
in order to satisfy the exercise. Because an exercise must be settled within
hours after receiving the notice of exercise, if the Fund fails to anticipate an
exercise, it may have to borrow (in amounts not exceeding 20% of the Fund's
total assets) pending settlement of the sale of securities in its portfolio and
would incur interest charges thereon.
When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its stock portfolio in order to make settlement in cash,and
the price of such stocks might decline before they can be sold. This timing risk
makes certain strategies involving more than one option substantially more risky
with index options than with stock options. For example, even if an index call
which the Fund has written is "covered" by an index call held by the Fund with
the same strike price, the Fund will bear the risk that the level of the index
may decline between the close of trading on the date the exercise notice is
filed with the clearing corporation and the close of trading on the date the
Fund exercises the call it holds or the time the Fund sells the call which in
either case would occur no earlier than the day following the day the exercise
notice was filed.
Special Risks of Purchasing Puts and Calls on Indices. If the Fund holds an
index option and exercises it before final determination of the closing index
value for that day, it runs the risk that the level of the underlying index may
change before closing. If such a change causes the exercised option to fall
out-of-the-money, the Fund will be required to pay the difference between the
closing index value and the exercise price of the option (times the applicable
multiple) to the assigned writer. Although the Fund may be able to minimize this
risk by withholding exercise instructions until just before the daily cut off
time or by selling rather than exercising an option when the index level is
close to the exercise price, it may not be possible to eliminate this risk
entirely because the cut off times for index options may be earlier than those
fixed for other types of options and may occur before definitive closing index
values are announced.
Special Risks of Purchasing OTC Options. When the Fund writes an OTC
option, it generally will be able to close out the OTC option prior to its
expiration only by entering into a closing purchase transaction with the dealer
with which the Fund originally wrote the OTC option. Any such cancellation, if
agreed to, may require the Fund to pay a premium to the counterparty. While the
Fund will enter into OTC options only with dealers which agree to, and which are
expected to be capable of, entering into closing transactions with the
Fund,there can be no assurance that the Fund will be able to liquidate an OTC
option at a favorable price at any time prior to expiration. Until the Fund is
able to effect a closing purchase transaction in a covered OTC call option the
Fund has written, it will not be able to liquidate securities used as cover
until the option expires or is exercised or different cover is substituted.
Alternatively,the Fund could write an OTC call option to, in effect, close an
existing OTC call option or write an OTC put option to close its position on an
OTC put option. However, the Fund would remain exposed to each counterparty's
credit risk on the put or call until such option is exercised or expires. There
is no guarantee that the Fund will be able to write put or call options, as the
case may be, that would effectively close an existing position. In the event of
insolvency of the counterparty, the Fund may be unable to liquidate an OTC
option.
In entering into OTC options, the Fund will be exposed to the risk that the
counterparty will default on, or be unable to complete, due to bankruptcy or
otherwise, its obligation on the option. In such event, the Fund may lose the
benefit of the transaction. The value of an OTC option to the Fund is dependent
upon the financial viability of the counterparty. If the Fund decides to enter
into transactions in OTC options, the Adviser will take into account the credit
quality of counterparties in order to limit the risk of default by the
counterparty.
OTC options may also be illiquid securities with respect to which no
secondary market exists. Similarly, the assets used to "cover" OTC options
written by the Fund will be treated as illiquid. OTC options are sold to
qualified dealers who agree that the Fund may repurchase any OTC options it
writes for a maximum price to be calculated by a formula set forth in the option
agreement. The "cover" for an OTC option written subject to this procedure would
be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option. Accordingly,to the
extent that OTC options are illiquid securities, investments in illiquid OTC
options will be subject to the limitations applicable to investments in illiquid
securities. See "Investment Restrictions."
Forward Foreign Currency Exchange Contracts
Since investments in foreign companies will usually involve currencies of
foreign countries, and since the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign
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currencies. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
in the inter bank market conducted directly between currency traders (usually
large commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for such
trades.
The Fund may enter into forward foreign currency exchange contracts in
several circumstances. When the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividends or interest payments
on a security which it holds, the Fund may desire to "lock-in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of foreign currency
involved in the underlying transactions, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when management of the Fund believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain. The Fund will not enter into
such forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the long-term investment decisions made with regard to overall diversification
strategies. However, the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Fund will thereby be served. The Fund's Custodian will
place cash or liquid equity or debt securities into a segregated account of the
Fund in an amount equal to the value of the Fund's total assets committed to the
consummation of forward foreign currency exchange contracts. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with respect to such
contracts.
The Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for the Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. Should forward
prices decline during the period between the Fund's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent that the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Fund's dealing in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the Fund is not required
to enter into such transactions with regard to its foreign currency-denominated
securities. It also should be realized that this method of protecting the value
of the Fund's portfolio securities against a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities which
are unrelated to exchange rates. It simply establishes a rate of exchange which
one can achieve at some future point in time. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any potential gain which
might result should the value of such currency increase.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of
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currency conversion. Although foreign exchange dealers do not charge a fee
for conversion, they do realize a profit based on the difference (the spread)
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
Risks of Transactions in Options on Foreign Currencies
An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange or otherwise may exist. In such event it might not be
possible to effect closing transactions in particular options, with the result
that the Fund would have to exercise its options in order to realize any profits
and would incur brokerage commissions upon the exercise of call options and upon
the subsequent disposition of underlying currencies acquired through the
exercise of call options or upon the purchase of underlying currencies for the
exercise of put options. If the Fund as a covered call option writer is unable
to effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying currency until the option expires or it delivers the
underlying currency upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in the class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. There is no assurance that higher
than anticipated trading activity or other unforeseen events might not, at
times, render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.
The Fund intends to purchase and sell only those options which are cleared by a
clearinghouse whose facilities are considered to be adequate to handle the
volume of options transactions.
Risks of Options on Foreign Currencies
Options on foreign currencies involve the currencies of two nations and
therefore, developments in either or both countries can affect the values of
options on foreign currencies. Risks include those described in the Prospectus
under "How the Fund Invests--Special Considerations and Risks," including
government actions affecting currency valuation and the movements of currencies
from one country to another. The quality of currency underlying option contracts
represent odd lots in a market dominated by transactions between banks; this can
mean extra transaction costs upon exercise. Options markets may be closed while
round-the-clock interbank currency markets are open, and this can create price
and rate discrepancies.
Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures contracts as
a hedging device. Due to the imperfect correlation between the price of futures
contracts and movements in the currency or group of currencies, the price of a
futures contract may move more or less than the price of the currencies being
hedged. Therefore, a correct forecast of currency rates, market trends or
international political trends by the Manager or Subadviser may still not result
in a successful hedging transaction.
Although the Fund will purchase or sell futures contracts only on exchanges
where there appears to be an adequate secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
contract or at any particular time. Accordingly, there can be no assurance that
it will be possible, at any particular time, to close a futures position. In the
event the Fund could not close a futures position and the value of such position
declined, the Fund would be required to continue to make daily cash payments of
variation margin. There is no guarantee that the price movements of the
portfolio securities denominated in foreign currencies will, in fact, correlate
with the price movements in the futures contracts and thus provide an offset to
losses on a futures contract. Currently, futures contracts are available on the
Australian Dollar, British Pound, Canadian Dollar, Japanese Yen, Swiss Franc,
DeutscheMark and Eurodollar.
Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act are exempt from the definition of
"commodity pool operator," subject to compliance with certain conditions. The
exemption is conditioned upon a requirement that all of the Fund's futures or
options transactions constitute bona fide hedging transactions within the
meaning of the Commodity Futures Trading Commission's (CFTC's) regulations. The
Fund will use currency futures and
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options on futures in a manner consistent with this requirement. The Fund
may also enter into futures or related options contracts for income enhancement
and risk management purposes if the aggregate initial margin and option premiums
do not exceed 5% of the liquidation value of the Fund's total assets.
Successful use of futures contracts by the Fund is also subject to the
ability of the Fund's Manager or Subadviser to predict correctly movements in
the direction of markets and other factors affecting currencies generally. For
example, if the Fund has hedged against the possibility of an increase in the
price of securities in its portfolio and price of such securities increases
instead, the Fund will lose part or all of the benefit of the increased value of
its securities because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Fund has insufficient cash to meet daily
variation margin requirements, it may need to sell securities to meet such
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it is disadvantageous to do so.
The hours of trading of futures contracts may not conform to the hours
during which the Fund may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be reflected
in the futures markets.
Options on Futures Contracts
An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a
put,the exercise price of the option on the futures contract. Currently options
can be purchased or written with respect to futures contracts on the Australian
Dollar, British Pound, Canadian Dollar, Japanese Yen, Swiss Franc, DeutscheMark
and Eurodollar.
The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such closing
transactions can be effected.
Limitations on Purchase and Sale of Options onForeign Currencies and Futures
Contracts on Foreign Currencies
The Fund will write put options on foreign currencies and futures contracts
on foreign currencies only if they are covered by segregating with the Fund's
Custodian an amount of cash or short-term investments equal to the aggregate
exercise price of the puts. The Fund will not (a) write puts having aggregate
exercise prices greater than 25% of total net assets; or (b) purchase (i) put
options on currencies or futures contracts on foreign currencies or (ii) call
options on foreign currencies if, after any such purchase, the aggregate
premiums paid for such options would exceed 10% of the Fund's total net assets.
The Fund intends to engage in futures contracts and options on futures
transactions as a hedge against changes in the value of the currencies to which
the Fund is subject or to which the Fund expects to be subject in connection
with future purchases. The Fund also intends to engage in such transactions when
they are economically appropriate for the reduction of risks inherent in the
ongoing management of the Fund.
Illiquid Securities
The Fund may not hold more than 5% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market (either within or outside of the United States) or
legal or contractual restrictions on resale. Historically, illiquid securities
have included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (Securities Act), securities which are otherwise not readily marketable
and repurchase agreements having a maturity of longer than seven days.
Securities which have not been registered under the Securities Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible
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securities and corporate bonds and notes. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment. The
fact that there are contractual or legal restrictions on resale to the general
public or to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser will
consider, inter alia, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security and (4) the nature of the security
and the nature of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer). In addition, in order for commercial paper that is issued in reliance
on Section 4(2) of the Securities Act to be considered liquid, (i) it must be
rated in one of the two highest rating categories by at least two nationally
recognized statistical rating organizations (NRSRO), or if only one NRSRO rates
the securities, by that NRSRO, or, if unrated, be of comparable quality in the
view of the investment adviser; and (ii) it must not be "traded flat" (i.e.
without accrued interest) or in default as to principal or interest. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
Position Limits
Transactions by the Fund in futures contracts and options will be subject
to limitations, if any, established by each of the exchanges, boards of trade or
other trading facilities (including NASDAQ) governing the maximum number of
options in each class which may be written or purchased by a single investor or
group of investors acting in concert, regardless of whether the options are
written on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of futures contracts and options which the Fund may
write or purchase may be affected by the futures contracts and options written
or purchased by other investment advisory clients of the Adviser. An exchange,
board of trade or other trading facility may order the liquidations of positions
found to be in excess of these limits, and it may impose certain other
sanctions.
When-Issued and Delayed Delivery Securities
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield to the Fund at the time of entering into the transaction. The
Fund's Custodian will maintain, in a segregated account of the Fund, cash, U.S.
Government securities or other liquid high-grade debt obligations having a value
equal to or greater than the Fund's purchase commitments; the Custodian will
likewise segregate securities sold on a delayed delivery basis.
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INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (i) 67% of the voting shares represented at a
meeting at which more than 50% of the outstanding voting shares are present in
person or represented by proxy or (ii) more than 50% of the outstanding voting
shares.
The Fund may not:
1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Fund of initial or maintenance margin in
connection with futures or options is not considered the purchase of a security
on margin.
2. Make short sales of securities or maintain a short position.
3. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow up to 20% of the value of its total assets (calculated when
the loan is made) for temporary, extraordinary or emergency purposes or for the
clearance of transactions. The Fund may pledge up to 20% of the value of its
total assets to secure such borrowings. For the purpose of this restriction,
obligations of the Fund to Directors pursuant to deferred compensation
arrangements, the purchase and sale of securities on a when-issued or delayed
delivery basis, the purchase and sale of forward foreign exchange contracts,
options and futures contracts and any collateral arrangements with respect to
the purchase and sale of forward foreign exchange contracts, options and futures
contracts are not deemed to be the issuance of a senior security or a pledge of
assets.
4. Purchase any security (other than obligations of the U.S. Government,
its agencies, or instrumentalities) if as a result: (i) with respect to 75% of
the Fund's total assets, more than 5% of the Fund's total assets (taken at
current value) would then be invested in securities of a single issuer, or (ii)
more than 25% of the Fund's total assets (taken at current value) would be
invested in a single industry.
5. Purchase any security if as a result the Fund would then hold more than
10% of the outstanding voting securities of an issuer.
6. Purchase any security if as a result the Fund would then have more than
5% of its total assets (taken at current value) invested in securities of
companies (including predecessors) less than three years old.
7. Buy or sell commodities or commodity contracts or real estate or invest
in real estate, although it may purchase or sell securities which are secured by
real estate and securities of companies which invest or deal in real estate (for
the purposes of this restriction, stock options, options on debt securities,
options on stock indices, stock indices futures, options on stock index futures,
futures contracts on currencies, options on such contracts and forward foreign
exchange contracts are not deemed to be a commodity or commodity contract).
8. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.
9. Make investments for the purpose of exercising control or management.
10. Invest in securities of other registered investment companies, except
by purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 5% of its total assets (taken at current
value) would be invested in such securities, or except as part of a merger,
consolidation or other acquisition.
11. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common stocks of companies
which invest in or sponsor such programs.
12. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities (limited to 10% of the Fund's total assets).
13. Purchase warrants if as a result the Fund would then have more than 5%
of its total assets (taken at current value) invested in warrants.
Although not fundamental policies, the Fund has agreed with various state
securities commissions that the Fund will not (i) invest in securities of any
issuer if, to the knowledge of the Fund, any officer or director of the Fund or
of the Manager owns more than 1/2 of 1% of the outstanding securities of such
issuer, and such officers and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuer and, (ii)
purchase warrants if, as a result, the Fund would have more than 5% of its
assets (determined at the time of investment) invested in warrants (warrants
will be valued at the lower of cost or market and investment in warrants which
are not listed on the New York Stock Exchange, American Stock Exchange or any
major foreign stock exchange will be limited to 2% of the Fund's net assets),
(iii) invest in securities of issuers which are
B-10
<PAGE>
restricted as to disposition, if more than 15% of its total assets would be
invested in such securities (this restriction shall not apply to mortgage-backed
securities, asset-backed securities or obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities) or (iv) invest more than 5%
of its total assets in securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, and in
equity securities of issuers which are not readily marketable.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
Position with Principal Occupations
Name, Address and Age Fund During Past Five Years
- --------------------- -------------- ----------------------
<S> <C> <C>
Stephen C. Eyre (73) Director Executive Director, The John A. Hartford Foundation, Inc. (charitable
c/o Prudential Mutual Fund foundation) (since May 1985); Director of Faircom, Inc.
Management, Inc.
One Seaport Plaza
New York, NY
Delayne Dedrick Gold (57) Director Marketing and Management Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, NY
Don G. Hoff (60) Director Chairman and Chief Executive Officer of Intertec, Inc. (investments)
c/o Prudential Mutual Fund since 1980; Director of Innovative Capital Management, Inc., The Asia
Management, Inc. Pacific Fund and The Greater China Fund.
One Seaport Plaza
New York, NY
*Harry A. Jacobs, Jr. (74) Director Senior Director (since January 1986) of Prudential Securities
One Seaport Plaza Incorporated (Prudential Securities); formerly Interim Chairman and
New York, NY Chief Executive Officer of Prudential Mutual Fund Management Inc.
(PMF); (June-September 1993); formerly Chairman of the Board of
Prudential Securities (1982-1985); Chairman and Chief Executive
Officer of Bache Group Inc. (1977-1982); Trustee of The Trudeau
Institute; Director of The First Australia Fund, Inc., The First
Australia Prime Income Fund, Inc., The Global Government Plus Fund,
Inc. and The Global Total Return Fund, Inc.
Sidney R. Knafel (65) Director Managing Partner of SRK Management Company (investments) since 1981;
c/o Prudential Mutual Fund Chairman of Insight Communications Company, L.P. and Microbiological
Management, Inc. Associates, Inc.; Director of Cellular Communications, Inc., Cellular
One Seaport Plaza Communications International, Inc., Cellular Communications of Puerto
New York, NY Rico, Inc., General American Investors Company, Inc., IGENE Biotechnology, Inc.,
International CableTel Incorporated and a number of private companies.
Robert E. LaBlanc (61) Director President of Robert E. LaBlanc Associates, Inc. (telecommunications)
c/o Prudential Mutual Fund since 1981; Director of Storage Technology Corporation, TIE/
Management, Inc. Communications, Inc., Tribune Company, Trustee of Manhattan
One Seaport Plaza College and Prudential U.S. Government Fund.
New York, NY
Thomas A. Owens, Jr. (73) Director Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, NY
- ----------
* "Interested" director, as defined in the Investment Company Act, by reason of
his affiliation with Prudential or PMF.
</TABLE>
B-11
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Fund During Past Five Years
- --------------------- -------------- ----------------------
<S> <C> <C>
*Richard A. Redeker (52) President and President, Chief Executive Officer and Director (since October 1993),
One Seaport Plaza Director PMF; Executive Vice President; Director and Member of the Operating
New York, NY Committee (since October 1993); Prudential Securities Incorporated
(Prudential Securities); Director (since October 1993) of Prudential
Securities Group, Inc. (PSG); Vice President, The Prudential
Investment Corporation (since July 1994); Director (since January
1994) of Prudential Mutual Fund Distributers, Inc. (PMFD) and
Prudential Mutual Fund Services, Inc. (PMFS); formerly Senior
Executive Vice President and Director of Kemper Financial Services,
Inc. (September 1978-September 1993); Director of The Global
Government Plus Fund, Inc., The Global Total Return Fund, Inc. and
The High Yield Income Fund, Inc.
Clay T. Whitehead (57) Director President of National Exchange Inc. (since May 1983).
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, NY
David W. Drasnin (58) Vice President Vice President and Branch Manager of Prudential Securities.
39 Public Square,
Suite 500 Wilkes Barre, PA
Robert F. Gunia (49) Vice President Chief Administrative Officer (since July 1990), Director (since
One Seaport Plaza January 1989) and Executive Vice President, Treasurer and Chief
New York, NY Financial Officer (since June 1987) of PMF; Senior Vice President
(since March 1987) of Prudential Securities; Executive Vice
President Treasurer, Comptroller, Director (since March 1991) of PMFD;
Director (since June 1987)of PMFS; Vice President and
Director (since May 1989) of The Asia Pacific Fund, Inc.
Grace C. Torres (36) Treasurer and First Vice President (since March 1994) of PMF; First Vice President
One Seaport Plaza Principal (since March 1994) of Prudential Securities; Vice President of Bankers
New York, NY Financial and Trust (July 1989-March 1994).
Accounting
Officer
Stephen M. Ungerman (42) Assistant First Vice President (since February 1993) of PMF; prior thereto,
One Seaport Plaza Treasurer Senior Tax Manager at Price Waterhouse LLP.
New York, NY
S. Jane Rose (49) Secretary Senior Vice President (since January 1991), Senior Counsel (since
One Seaport Plaza June 1987) and First Vice President (June 1987-December 1990) of
New York, NY PMF; Senior Vice President and Senior Counsel of Prudential
Securities (since July 1992); formerly Vice President and
Associate General Counsel of Prudential Securities.
Ellyn C. Acker (34) Assistant Vice President and Associate General Counsel of Prudential Securities
One Seaport Plaza Treasurer and PMF (since March 1995); prior thereto, associated with the
New York, NY law firm of Fulbright & Jaworski L.L.P.
</TABLE>
- ----------
* "Interested" director, as defined in the Investment Company Act, by reason of
his affiliation with Prudential or PMF.
B-12
<PAGE>
Directors and officers of the Fund are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities.
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
The Fund pays each of its Directors who is not an "affiliated" person of PMF
annual compensation of $12,000, in addition to certain out-of-pocket expenses.
The chairman of the Audit Committee receives an additional $4,000 per year.
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of such agreement, the Fund accrues
daily the amount of Directors' fees which accrue interest at a rate equivalent
to the prevailing rate applicable to 90-day U.S. Treasury Bills at the beginning
of each calendar quarter or, pursuant to an SEC exemptive order, at the daily
rate of return of the Fund (the Fund rate). Payment of the interest so accrued
is also deferred and accruals become payable at the option of the Director. The
Fund's obligation to make payments of deferred Directors' fees, together with
interest thereon, is a general obligation of the Fund.
The Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993. Under this phase-in provision, Messrs. Eyre,
Jacobs and Owens are scheduled to retire on December 31, 1998.
Pursuant to the terms of the Management Agreement with the Fund, the
Manager pays all compensation of officers and employees of the Fund as well as
the fees and expenses of all Directors of the Fund who are affiliated persons of
the Manager.
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended October 31, 1995 to the Directors who are not
affiliated with the Manager and the aggregate compensation paid to such
Directors for service on the Fund's board and that of all other funds managed by
Prudential Mutual Fund Management, Inc. (Fund Complex) for the calendar year
ended December 31, 1994.
<TABLE>
<CAPTION>
Compensation Table
Total
Pension or Compensation
Retirement From Fund
Aggregate Benefits Accrued Estimated Annual and Fund
Compensation As Part of Trust Benefits Upon Complex Paid
Name and Position From Fund Expenses Retirement to Trustees
----------------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Stephen C. Eyre--Director ....................... $16,000 None N/A $ 41,000(4/4)*
Delayne Dedrick Gold--Director .................. $12,000 None N/A $185,000(24/43)*
Don G. Hoff--Director ........................... $12,000 None N/A $ 48,500(4/4)*
Sidney R. Knofel--Director ...................... $12,000 None N/A $ 35,500(4/4)*
Robert E. LaBlanc--Director ..................... $12,000 None N/A $ 35,500(4/4)*
Thomas A. Owens, Jr.--Director .................. $12,000 None N/A $ 12,000(1)*
Clay T. Whitehead--Director ..................... $12,000 None N/A $ 12,000(1)*
</TABLE>
- ----------
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
As of December 6, 1995, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund.
As of December 6, 1995, there were no beneficial owners, directly or
indirectly, of more than 5% of the outstanding common stock of the Fund.
As of December 6, 1995, Prudential Securities was the record holder for
other beneficial owners of 5,718,406 Class A shares (or approximately 39% of the
outstanding Class A shares), 12,741,415 Class B shares (or approximately 72% of
the outstanding Class B shares) and 202,683 Class C shares (or approximately 80%
of the outstanding Class C shares) of the Fund. In the event of any meetings of
shareholders, Prudential Securities will forward, or cause the forwarding of,
proxy materials to the beneficial owners for which it is the record holder.
B-13
<PAGE>
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to substantially all of the other investment companies that, together with the
Fund, comprise the "Prudential Mutual Funds." See "How the Fund is Managed" in
the Prospectus. As of November 30, 1995, PMF managed and/or administered
open-end and closed-end management investment companies with assets of
approximately $50 billion and, according to the Investment Company Institute, as
of September 30, 1995, the Prudential Mutual Funds were the 13th largest family
of mutual funds in the United States.
PMF is a subsidiary of Prudential Securities Incorporated and The
Prudential Insurance Company of America (Prudential). PMF has three wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc., Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent) and Prudential Mutual Fund
Investment Management, Inc. PMFS serves as the transfer agent for the Prudential
Mutual Funds and, in addition, provides customer service, record keeping and
management and administration services to qualified plans.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, PMF is obligated to keep certain books and records of the Fund. PMF
also administers the Fund's corporate affairs and, in connection therewith,
furnishes the Fund with office facilities, together with those ordinary clerical
and bookkeeping services which are not being furnished by State Street Bank and
Trust Company, the Fund's custodian, and Prudential Mutual Fund Services,
Inc.(PMFS or the Transfer Agent), the Fund's transfer and dividend disbursing
agent. The management services of PMF for the Fund are not exclusive under the
terms of the Management Agreement and PMF is free to, and does, render
management services to others.
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .75 of 1% of the Fund's average daily net assets. The fee
is computed daily and payable monthly. The Management Agreement also provides
that, in the event the expenses of the Fund (including the fees of PMF, but
excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due to PMF will be
reduced by the amount of such excess. Reductions in excess of the total
compensation payable to PMF will be paid by PMF to the Fund. No such reductions
were required during the fiscal year ended October 31, 1995. Currently, the Fund
believes that the most restrictive expense limitation of state securities
commissions is 2-1/2% of the Fund's average daily net assets up to $30 million,
2% of the next $70 million of such assets and 1-1/2% of such assets in excess of
$100 million. Because the expenses incurred by the Fund are anticipated to be
higher than those of funds that invest only in U.S. securities, the Fund has
received waivers from applicable state expense limitations to exclude certain
foreign transactional expenses from expenses subject to the limitation.
In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel except
the fees and expenses of Directors who are not affiliated persons of PMF or the
Fund's investment adviser;
(b) all expenses incurred, by PMF or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those assumed by
the Fund as described below; and
(c) the costs and expenses payable to The Prudential Investment Corporation
(PIC) pursuant to the subadvisory agreement between PMF and PIC (the Subadvisory
Agreement).
Under the terms of the Management Agreement, the Fund is
responsible for the payment of the following expenses: (a) the fees payable to
the Manager, (b) the fees and expenses of Directors who are not affiliated
persons of the Manager or the Fund's investment adviser, (c) the fees and
certain expenses of the Custodian and Transfer and Dividend Disbursing Agent,
including the cost of providing records to the Manager in connection with its
obligation of maintaining required records of the Fund and of pricing the Fund's
shares, (d) the charges and expenses of legal counsel and independent
accountants for the Fund, (e) brokerage commissions and any issue or transfer
taxes chargeable to the Fund in connection with its securities transactions, (f)
all taxes and corporate fees payable by the Fund to governmental agencies, (g)
the fees of any trade associations of which the Fund may be a member, (h) the
cost of stock certificates representing shares of the Fund, (i) the cost of
fidelity and liability insurance, (j) the fees and expenses involved in
registering and maintaining registration of the Fund and of its shares with the
Securities and Exchange Commission, registering the Fund and qualifying its
shares under state securities laws, including the preparation and printing of
the Fund's registration statements and prospectuses for such purposes, (k)
allocable communications expenses with respect to investor services and all
expenses of shareholders' and Directors' meetings and of preparing, printing and
mailing reports, proxy statements and prospectuses to shareholders in the amount
necessary for distribution to the shareholders, (l) litigation and
B-14
<PAGE>
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business and (m) distribution fees.
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act. The Management Agreement
was last approved by the Board of Directors of the Fund, including a majority of
the Directors who are not parties to the contract or interested persons of any
such party as defined in the Investment Company Act on June 5, 1995 and by
shareholders of the Fund on February 25, 1988. For the fiscal years ended
October 31, 1995, 1994 and 1993, PMF received management fees of $3,481,921,
$3,032,864 and $1,538,624, respectively.
PMF has entered into a Subadvisory Agreement (the Subadvisory Agreement)
with PIC (the Subadviser), a wholly-owned subsidiary of Prudential. The
Subadvisory Agreement provides that PIC will furnish investment advisory
services in connection with the management of the Fund. In connection therewith,
PIC is obligated to keep certain books and records of the Fund. PMF continues to
have responsibility for all investment advisory services pursuant to the
Management Agreement and supervises PIC's performance of such services. PIC is
reimbursed by PMF for the reasonable costs and expenses incurred by PIC in
furnishing those services. Investment advisory services are provided to the Fund
by a unit of the Subadviser, known as Prudential Mutual Fund Investment
Management.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such party as defined in the Investment Company Act on
June 5, 1995, and by shareholders of the Fund on February 25,1988.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not more than 60 days', nor less than 30
days', written notice.
The Subadvisory Agreement provides that it will continue in effect for a
period of more than two years from its execution only so long as such
continuance is specifically approved at least annually in accordance with the
requirements of the Investment Company Act.
The Manager and Subadviser are subsidiaries of Prudential, which is one of
the largest diversified financial services institutions in the world and, based
on total assets, the largest insurance company in North America as of December
31, 1994. Its primary business is to offer a full range of products and services
in three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and member of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs nearly
100,000 persons worldwide, and maintains a sales force of approximately 19,000
agents, 3,400 insurance brokers and 6,000 financial advisors. It insures or
provides other financial services to more than 50 million people worldwide.
Prudential is a major issuer of annuities, including variable annuities.
Prudential seeks to develop innovative products and services to meetconsumer
needs in each of its business areas. For the year ended December 31, 1994,
Prudential through its subsidiariesprovided financial services to more than 50
million people worldwide--more than one of every five people in the United
States. As of December 31, 1994, Prudential through its subsidiaries provided
automobile insurance for more than 1.8 million cars and insured more than 1.5
million homes. For the year ended December 31, 1994, The Prudential Bank, a
subsidiary of Prudential, served 940,000 customers in 50 states providing credit
card services and loans totaling more than $1.2 billion. Assets held by
Prudential Securities Incorporated (PSI) for its clients totaled approximately
$150 billion at December 31, 1994. During 1994, over 28,000 new customer
accounts were opened each month at PSI. The Prudential Real Estate Affiliates,
the fourth largest real estate brokerage network in the United States, has more
than 34,000 brokers and agents and more than 1,100 offices in the United States.
Based on data for the year ended December 31, 1994, for the Prudential
Mutual Funds, on an average day, there are approximately $80 million in common
stock transactions, over $100 million in bond transactions and over $4.1 billion
in money market transactions. In 1994, the Prudential Mutual Funds effected more
than 57,000 trades in money market securities and held on average $21 billion of
money market securities. Based on complex-wide data for the year ended December
31, 1994, on anaverage day, 7,168 shareholders telephoned Prudential Mutual Fund
Services, Inc., the Transfer Agent of the Prudential Mutual Funds, on the
Prudential Mutual Funds' toll-free number. On an annual basis, that represents
approximately 1.8 million telephone calls and approximately 1.1 million fund
transactions.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
The Wall Street Journal, The New York Times, Barron's and USA Today.
B-15
<PAGE>
DISTRIBUTOR
Prudential Securities Incorporated, One Seaport Plaza, New York, New York
10292 (Prudential Securities), acts as the distributor of the Class A, Class B
and Class C shares of the Fund. Prior to January 2, 1996, Prudential Mutual Fund
Distributors, Inc. (PMFD), One Seaport Plaza, New York, New York 10292, acted as
distributor of the Class A shares of the Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively the Plans) adopted by the Fund
under Rule 12b-1under the Investment Company Act and separate distribution
agreements (the Distribution Agreements), Prudential Securities (the
Distributor) incurs the expenses of distributing the Fund's Class A, Class B and
Class C shares. Prudential Securities serves as the Distributor of the Class Z
shares and incurs the expenses of distributing the Fund's Class Z shares under a
Distribution Agreement with the Fund, none of which are reimbursed by or paid
for by the Fund. See "How the Fund is Managed--Distributor" in the Prospectus.
Prior to January 22, 1990, the Fund offered only one class of shares (the
existing Class B shares). On October 17, 1989, the Board of Directors, including
a majority of the Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Class A or
Class B Plan or in any agreement related to either Plan (the Rule 12b-1
Directors), at a meeting called for the purpose of voting on each Plan, adopted
a new plan of distribution for the Class A shares of the Fund (the Class A Plan)
and approved an amended and restated plan of distribution with respect to the
Class B shares of the Fund (the Class B Plan). On June 3, 1993, the Board of
Directors, including a majority of the Rule 12b-1 Directors, at a meeting called
for the purpose of voting on each Plan, approved the continuance of the Plans
and Distribution Agreements and approved modifications of the Fund's Class A and
Class B Plans and Distribution Agreements to conform them with recent amendments
to the National Association of Securities Dealers, Inc. (NASD) maximum sales
charge rule described below. As modified, the Class A Plan provides that (i) up
to .25 of 1% of the average daily net assets of the Class A shares may be used
to pay for personal service and the maintenance of shareholder accounts (service
fee) and (ii) total distribution fees (including the service fee of .25 of 1%)
may not exceed .30 of 1%. As modified, the Class B Plan provides that (i) up to
.25 of 1% of the average daily net assets of the Class B shares may be paid as a
service fee and .50 of 1% (not including the service fee) per annum of the
Fund's average daily net assets up to the level of average daily net assets as
of February 26, 1986, plus .75 of 1% (not including the service fee) per annum
of average daily net assets in excess of such level may be used as reimbursement
for distribution-related expenses with respect to the Class B shares
(asset-based sales charge). On June 3, 1993 the Board of Directors, including a
majority of the Rule 12b-1 Directors, at a meeting called for the purpose of
voting on each Plan, adopted a plan of distribution for the Class C shares of
the Fund and approved further amendments to the plans of distribution for the
Fund's Class A and Class B shares changing them from reimbursement type plans to
compensation type plans. The Plans were last approved by the Board of Directors,
including a majority of the Rule 12b-1 Directors, on June 5, 1995. The Class A
Plan, as amended, was approved by Class A and Class B shareholders, and the
Class B Plan, as amended, was approved by Class B shareholders on July 19, 1994.
The Class C Plan was approved by the sole shareholder of Class C shares on
August 1, 1994.
Class A Plan. Prior to January 1, 1996, Prudential Mutual Fund
Distributors, Inc. (PMFD) acted as distributor of the Fund's Class A shares. For
the fiscal year ended October 31, 1995, PMFD received payments of $435,790 under
the Class A Plan. This amount was primarily expended for payment of account
servicing fees to financial advisors and other persons who sell Class A shares.
For the fiscal year ended October 31, 1995, PMFD also received approximately
$297,500 in initial sales charges.
Class B Plan. For the fiscal year ended October 31, 1995, Prudential
Securities received $2,648,693 from the Fund under the Class B Plan and spent
approximately $2,150,000 in distributing the Fund's Class B shares. It is
estimated that of the latter amount approximately 2.1% ($45,000) was spent on
printing and mailing of prospectuses to other than current shareholders; 19.7%
($423,000) on compensation to Pruco Securities Corporation, an affiliated
broker-dealer, for commissions to its representatives and other expenses,
including an allocation of overhead and other branch office distribution-related
expenses, incurred by it for distribution of Fund shares; 78.2% ($1,682,000) on
the aggregate of (i) payments of commission and account servicing fees to
financial advisors (38.2% or $822,000) and (ii) an allocation of overhead and
other branch office distribution-related expenses (40.0% or $860,000). The term
"overhead and other branch office distribution-related expenses" represents (a)
the expenses of operating Prudential Securities' branch offices in connection
with the sale of Fund shares, including lease costs, the salaries and employee
benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) expenses of mutual fund sales coordinators to promote
the sale of Fund shares and (d) other incidental expenses relating to branch
promotion of Fund sales.
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by holders of Class B shares upon certain redemptions of
Class B shares. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges" in the Prospectus. For the fiscal year ended October 31,
1995, Prudential Securities received approximately $810,500 in contingent
deferred sales charges.
B-16
<PAGE>
Class C Plan. For the fiscal year ended October 31, 1995, Prudential
Securities received $22,842 from the Fund under the Class C Plan and spent
approximately $34,000 in distributing the Fund's Class C shares. It is estimated
that of the latter amount approximately 8.9% ($3,000) was spent on printing and
mailing of prospectuses to other than current shareholders; 2.9% ($1,000) on
compensation to Pruco Securities Corporation, an affiliated broker-dealer, for
commissions to its representatives and other expenses, including an allocation
of overhead and other branch office distribution-related expenses, incurred by
it for distribution of Fund shares; 88.2% ($30,000) on the aggregate of (i)
payments of commission and account servicing fees to financial advisors (41.2%
or $14,000) and (ii) an allocation of overhead and other branch office
distribution-related expenses (47.0% or $16,000). The term "overhead and other
branch office distribution-related expenses" represents (a) the expenses of
operating Prudential Securities' branch offices in connection with the sale of
Fund shares, including lease costs, the salaries and employee benefits of
operations and sales support personnel, utility costs, communications costs and
the costs of stationery and supplies, (b) the costs of client sales seminars,
(c) expenses of mutual fund sales coordinators to promote the sale of Fund
shares and (d) other incidental expenses relating to branch promotion of Fund
sales.
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by holders of Class C shares upon certain redemptions of
Class C shares. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges" in the Prospectus. For the fiscal year ended October 31,
1995, Prudential Securities received approximately $1,500 in contingent deferred
sales charges.
The Class A, Class B and Class C Plans continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Board of Directors, including a majority vote of the Rule 12b-1
Directors, cast in person at a meeting called for the purpose of voting on such
continuance. The Plans may each be terminated at any time, without penalty, by
the vote of a majority of the Rule 12b-1 Directors or by the vote of the holders
of a majority of the outstanding shares of the applicable class on not more than
30 days' written notice to any other party to the Plans. The Plans may not be
amended to increase materially the amounts to be spent for the services
described therein without approval by the shareholders of the applicable class
(by both Class A and Class B shareholders, voting separately, in the case of
material amendments to the Class A Plan), and all material amendments are
required to be approved by the Board of Directors in the manner described above.
Each Plan will automatically terminate in the event of its assignment. The Fund
will not be contractually obligated to pay expenses incurred under any Plan if
it is terminated or not continued.
Pursuant to each Plan, the Board of Directors will review at least
quarterly a written report of the distribution expenses incurred on behalf of
each class of shares of the Fund by the Distributor. The report includes an
itemization of the distribution expenses and the purposes of such expenditures.
In addition, as long as the Plans remain in effect, the selection and nomination
of Rule 12b-1 Directors shall be committed to the Rule 12b-1 Directors.
Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
Prudential Securities to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1933, as amended. Each Distribution
Agreement was last approved by the Board of Directors, including a majority of
the Rule 12b-1 Directors, on June 5, 1995. On November 3, 1995, the Board of
Directors approved the transfer of the Distribution Agreement for Class A shares
with PMFD to Prudential Securities.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In settling the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease
B-17
<PAGE>
and desist from future violations, and to provide voluntary donations to the
State of Texas in the aggregate amount of $1,500,000. The firm agreed to suspend
the creation of new customer accounts, the general solicitation of new accounts,
and the offer for sale of securities in or from PSI's North Dallas office to new
customers during a period of twenty consecutive business days, and agreed that
its other Texas offices would be subject to the same restrictions for a period
of five consecutive business days. PSI also agreed to institute training
programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. and PSI entered into
agreements with the United States Attorney deferring prosecution (provided PSI
complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the Fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director will also serve as an independent "ombudsman" whom PSI
employees can call anonymously with complaints about ethics and compliance.
Prudential Securities shall report any allegations or instances of criminal
conduct and material improprieties to the new director. The new director will
submit compliance reports which shall identify all such allegations or instances
of criminal conduct and material improprieties every three months for a
three-year period.
NASD Maximum Sales Charge Rule. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of each
class of shares. Interest charges on unreimbursed distribution expenses equal to
the prime rate plus one percent per annum may be added to the 6.25% limitation.
Sales from the reinvestment of dividends and distributions are not included in
the calculation of the 6.25% limitation. The annual asset-based sales charge on
shares of the Fund may not exceed .75 of 1% per class. The 6.25% limitation
applies to the Fund rather than on a per shareholder basis. If aggregate sales
charges were to exceed 6.25% of total gross sales of any class, all sales
charges on shares of that class would be suspended.
NET ASSET VALUE
Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indices) are valued at the
last sales price on the day of valuation, or, if there was no sale on such day,
the mean between the last bid and asked prices on such day, as provided by a
pricing service. Corporate bonds (other than convertible debt securities) and
U.S. Government securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed to
be over-the-counter, are valued on the basis of valuations provided by a pricing
service which uses information with respect to transactions in bonds, quotations
from bond dealers, agency ratings, market transactions in comparable securities
and various relationships between securities in determining value. Convertible
debt securities that are actively traded in the over-the-counter market,
including listed securities for which the primary value is believed to be
over-the-counter, are valued at the mean between the last reported bid and asked
prices provided by principal market makers or independent pricing agents. Other
securities will be valued at the mean of the most recently quoted bid and asked
prices in the over-the-counter market. Options on stock and stock indices traded
on an exchange are valued at the mean between the most recently quoted bid and
asked prices on the respective exchange and futures contracts and options
thereon are valued at their last sales prices as of the close of the commodities
exchange or board of trade. Should an extraordinary event, which is likely to
affect the value of the security, occur after the close of an exchange on which
a portfolio security is traded, such security will be valued at fair value
considering factors determined in good faith by the investment adviser under
procedures established by and under the general supervision of the Fund's Board
of Directors.
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Board of Directors. Short-term debt securities are valued at cost, with interest
accrued or discount amortized to the date of maturity, if their original
maturity was 60 days or less, unless this is determined by the Board of
Directors not to represent fair value. Short-term securities with remaining
maturities of 60 days or more, for which market quotations are readily
available, are valued at their current market quotations as supplied by an
independent pricing agent or principal market maker. The Fund will compute its
net asset value at 4:15 P.M., New York time, on each day the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem Fund shares have been received or days on which changes in the value
of the Fund's portfolio securities do not affect net asset value. In the event
the New York Stock Exchange closes early on any business day, the net asset
value of the Fund's shares shall be determined at a time between such closing
and 4:15 P.M., New York time.
Net asset value is calculated separately for each class. The net asset
value of Class B and Class C shares will generally be lower than the net asset
value of Class A shares as a result of the larger distribution-related fee to
which Class B and Class C shares
B-18
<PAGE>
are subject. It is expected, however, that the net asset value per share of each
class will tend to converge immediately after the recording of dividends which
will differ by approximately the amount of the distribution expense accrual
differential among the classes.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities,
options and futures contracts for the Fund, the selection of brokers, dealers
and futures commission merchants to effect the transactions and the negotiation
of brokerage commissions, if any. Purchases and sales of securities, options or
futures on a national securities exchange or board of trade are effected through
brokers or futures commission merchants who charge a negotiated commission for
their services; on foreign securities exchanges, commissions may be fixed.
Orders may be directed to any broker or futures commission merchant including,
to the extent and in the manner permitted by applicable law, Prudential
Securities and its affiliates. The term "Manager" as used in this section
includes the Subadviser.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. The Fund will not deal with Prudential
Securities or any affiliate in any transaction in which Prudential Securities or
any affiliate acts as principal. Thus, it will not deal in over-the-counter
securities with Prudential Securities acting as market maker, and it will not
execute a negotiated trade with Prudential Securities if execution involves
Prudential Securities' acting as principal with respect to any part of the
Fund's order.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Prudential Securities (or any affiliate), during the
existence of the syndicate, is a principal underwriter (as defined in the
Investment Company Act), except in accordance with rules of the SEC. This
limitation, in the opinion of the Fund, will not significantly affect the Fund's
ability to pursue its present investment objective. However, in the future, in
other circumstances, the Fund may be at a disadvantage because of this
limitation in comparison to other funds with similar objectives but not subject
to such limitations.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available. Within
the framework of this policy, the Manager will consider research and investment
services provided by brokers, dealers or futures commission merchants who effect
or are parties to portfolio transactions of the Fund, the Manager or its
clients. Such research and investment services are those which brokerage houses
customarily provide to institutional investors and include statistical and
economic data and research reports on particular companies and industries. Such
services are used by the Manager in connection with all of its investment
activities, and some of such services obtained in connection with the execution
of transactions for the Fund may be used in managing other investment accounts.
Conversely, brokers, dealers or futures commission merchants furnishing such
services may be selected for the execution of transactions of such other
accounts, whose aggregate assets are far larger than those of the Fund, and the
services furnished by such brokers, dealers or futures commission merchants may
be used by the Manager in providing investment management for the Fund.
Commission rates are established pursuant to negotiations with the broker,
dealer or futures commission merchant based on the quality and quantity of
execution services provided by the broker, dealer or futures commission merchant
in the light of generally prevailing rates. The Manager is authorized to pay
higher commissions on brokerage transactions for the Fund to brokers, dealers or
futures commission merchants other than Prudential Securities in order to secure
research and investment services described above, subject to review by the
Fund's Board of Directors from time to time as to the extent and continuation of
this practice. The allocation of orders among brokers, dealers and futures
commission merchants and the commission rates paid are reviewed periodically by
the Fund's Board of Directors.
Subject to the above considerations, Prudential Securities may act as a
broker or futures commission merchant for the Fund. In order for Prudential
Securities (or any affiliate) to effect any portfolio transactions for the Fund,
the commissions,fees or other remuneration received by Prudential Securities (or
any affiliate) must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers or futures commission merchants in
connection with comparable transactions involving similar securities or futures
being purchased or sold on a securities exchange or board of trade during a
comparable period of time. This standard would allow Prudential Securities (or
any affiliate) to receive no more than the remuneration which would be expected
to be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Board of Directors of the Fund, including a
majority of the noninterested directors, has adopted procedures which are
reasonably designed to provide that any commissions, fees or other remuneration
paid to Prudential Securities (or any affiliate) are consistent with the
foregoing standard. In accordance with Section 11(a) under the Securities
Exchange Act of 1934, Prudential Securities may not retain compensation for
effecting transactions on a national securities exchange for the Fund unless the
Fund has
B-19
<PAGE>
expressly authorized the retention of such compensation. Prudential Securities
must furnish to the Fund at least annually a statement setting forth the total
amount of all compensation retained by Prudential Securities from transactions
effected for the Fund during the applicable period. Brokerage transactions with
Prudential Securities (or any affiliate) are also subject to such fiduciary
standards as may be imposed upon Prudential Securities (or such affiliate) by
applicable law.
The table presented below shows certain information regarding the payment
of commissions by the Fund, including the amount of such commissions paid to
Prudential Securities, for the three year period ended October 31, 1995.
<TABLE>
<CAPTION>
Fiscal Years ended October 31,
---------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Total brokerage commissions paid by the Fund ................................. $1,246,558 $1,646,300 $952,800
Total brokerage commissions paid to Prudential Securities .................... $ 20,800 $ 2,200 $ 0
Percentage of total brokerage commissions paid to Prudential Securities ...... 1.7% 0.1% 0%
</TABLE>
Of the total brokerage commissions, $1,199,478.15 or 98.3% were paid to
firms which provided research, statistical or other services to PMF during the
fiscal year ended October 31, 1995. PMF has not separately identified a portion
of such brokerage commissions as allocable to the provision of such research,
statistical or other services.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B or Class C shares). Class Z shares of the Fund
are not subject to any sales or redemption charge and are offered exclusively
for sale to the Participants in the PSI 401(k) Plan, an employee benefit plan
sponsored by Prudential Securities (the PSI 401(k) Plan). See "Shareholder
Guide--How to Buy Shares of the Fund" in the Prospectus.
Each class represents an interest in the same assets of the Fund and is
identical in all respects except that (i) each class is subject to different
sales charges and distribution and/or service expenses which may affect
performance, (ii) each class has exclusive voting rights on any matter submitted
to shareholders that relates solely to its arrangement and has separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class, (iii) each class has a
different exchange privilege, (iv) only Class B shares have a conversion feature
and (v) Class Z shares are offered exclusively for sale to the Trustee of thePSI
401(k) Plan. See "Distributor." Each class also has separate exchange
privileges. See "Shareholder Investment Account--Exchange Privilege."
Specimen Price Make-up
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 5% and Class
B* and Class C* shares are sold at net asset value. Using the Fund's net asset
value at October 31, 1995, the maximum offering price of the Fund's shares is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Class A
Net asset value and redemption price per Class A share .............................. $15.52
Maximum sales charge (5% of offering price) ......................................... .82
------
Offering price to public ............................................................ $16.34
======
Class B
Net asset value, offering price and redemption price per Class B share* ............. $15.03
======
Class C
Net asset value, offering price and redemption price per Class C share* ............. $15.03
======
Class Z
Net asset value, offering price and redemption price per Class Z share** ............ $15.52
======
</TABLE>
----------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
** Value is estimated, and it is anticipated that Class Z shares will be
offered in or about March 1996. See "General Information--Description of
Common Stock" in the Prospectus.
Reduction and Waiver of Initial Sales Charges--Class A Shares
Combined Purchase and Cumulative Purchase Privilege. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See the table of break points under "Shareholder
Guide--Alternative Purchase Plan" in the Prospectus.
B-20
<PAGE>
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group
that holds 25% or more of the outstanding voting securities of a
company will be deemed to control the company, and a partnership will
be deemed to be controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Fund investors may include the
following: an employer (or group of related employers) and one or more qualified
retirement plans of such employer or employers (an employer controlling,
controlled by or under common control with another employer is deemed related to
that employer).
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will be granted
subject to confirmation of the investor's holdings. The Combined Purchase and
Cumulative Purchase Privilege does not apply to individual participants in any
retirement or group plans.
Rights of Accumulation. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of the shares of
the Fund and shares of other Prudential Mutual Funds (excluding money market
funds other than those acquired pursuant to the exchange privilege) to determine
the reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly with
the Transfer Agent or through Prudential Securities. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering or price (net asset value plus maximum sales charge)
as of the previous business day. See "How the Fund Values Its Shares" in the
Prospectus. The Distributor must be notified at the time of purchase that the
investor is entitled to a reduced sales charge. The reduced sales charges will
be granted subject to confirmation of the investor's holdings. Rights of
accumulation are not available to individual participants in any retirement or
group plans.
Letters of Intent. Reduced sales charges are available to investors (or an
eligible group of related investors), including retirement and group plans, who
enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of the Fund and shares of other Prudential
Mutual Funds. All shares of the Fund and shares of other Prudential Mutual Funds
(excluding money market funds other than acquired pursuant to the exchange
privilege) which were previously purchased and are still owned are also included
in determining the applicable reduction. However, the value of shares held
directly with the Transfer Agent and through Prudential Securities will not be
aggregated to determine the reduced sales charge. All shares must be held either
directly with the Transfer Agent or through Prudential Securities. Letters of
Intent are not available to individual participants in any retirement or group
plans.
A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
Letter of Intent will be held by the Transfer Agent in the name of the
purchaser, except in the case of retirement and group plans where the employer
or plan sponsor will be responsible for paying any applicable sales charge. The
effective date of a Letter of Intent may be back-dated up to 90 days, in order
that any investments made during this 90-day period, valued at the purchaser's
cost, can be applied to the fulfillment of the Letter of Intent goal, except in
the case of retirement and group plans.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser (or the employer or
plan sponsor in the case of any retirement or group plan) is required to pay the
difference between the sales charge otherwise applicable to the purchases made
during this period and sales charges actually paid. Such payment may be made
directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. Investors electing to
purchase Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.
B-21
<PAGE>
Waiver of the Contingent Deferred Sales Charge--Class B Shares
The Contingent Deferred Sales Charge is waived under circumstances
described in the Prospectus. See "Shareholder Guide--How to Sell Your
Shares--Waiver of Contingent Deferred Sales Charges--Class B Shares" in the
Prospectus. In connection with these waivers, the Transfer Agent will require
you to submit the supporting documentation set forth below.
Category of Waiver Required Documentation
Death A copy of the shareholder's death
certificate or, in the case of a trust, a
copy of the grantor's death certificate,
plus a copy of the trust agreement
identifying the grantor.
Disability--An individual will be A copy of the Social Security
considered disabled if he or she is Administration award letter or a
unable to engage in any substantial letter from a physician on the
gainful activity by reason of any physician's letterhead stating that
medically determinable physical or the shareholder (or, in the case of a
mental impairment which can be trust, the grantor) is permanently
expected to result in death or to be disabled. The letter must also
of long-continued and indefinite indicate the date of disability.
duration.
Distribution from an IRA or 403(b) A copy of the distribution form from
Custodial Account the custodial firm indicating (i) the
date of birth of the shareholder
and(ii) that the shareholder is over
age 59 1/2 and is taking a normal
distribution--signed by the
shareholder.
Distribution from Retirement Plan A letter signed by the plan
administrator/trustee indicating the
reason for the distribution.
Excess Contributions A letter from the shareholder (for an
IRA) or the plan administrator/trustee
on company letterhead indicating the
amount of the excess and whether or
not taxes have been paid.
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
Quantity Discount--Class B Shares Purchased Prior to August 1, 1994
The CDSC is reduced on redemptions of Class B shares of the Fund purchased
prior to August 1, 1994 if immediately after a purchase of such shares, the
aggregate cost of all Class B shares of the Fund owned by you in a single
account exceeded $500,000. For example, if you purchased $100,000 of Class B
shares of the Fund and the following year purchased an additional $450,000 of
Class B shares with the result that the aggregate cost of your Class B shares of
the Fund following the second purchase was $550,000, the quantity discount would
be available for the second purchase of $450,000 but not for the first purchase
of $100,000. The quantity discount will be imposed at the following rates
depending on whether the aggregate value exceeded $500,000 or $1 million:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
as a Percentage of Dollars Invested
or Redemption Proceeds
Year Since Purchase ------------------------------------------
Payment Made $500,001 to $1 million Over $1 million
------------ ---------------------- ---------------
<S> <C> <C>
First ......................................... 3.0% 2.0%
Second ........................................ 2.0% 1.0%
Third ......................................... 1.0% 0%
Fourth and thereafter ......................... 0% 0%
</TABLE>
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund makes available to the
shareholders the following privileges and plans.
Automatic Reinvestment of Dividends and/or Distributions
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at the net
asset value per share at the close of business on the record date. An investor
may direct the Transfer Agent in
B-22
<PAGE>
writing not less than five full business days prior to the record date to
have subsequent dividends and/or distributions sent in cash rather than
reinvested. In the case of recently purchased shares for which registration
instructions have not been received on the record date, cash payment will be
made directly to the dealer. Any shareholder who receives a cash payment
representing a dividend or distribution may reinvest such distribution at net
asset value by returning the check or the proceeds to the Transfer Agent within
30 days after the payment date. Such investment will be made at the net asset
value per share next determined after receipt of the check or proceeds by the
Transfer Agent. Such shareholder will receive credit for any contingent deferred
sales charge paid in connection with the amount of proceeds being reinvested.
Exchange Privilege
The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
Mutual Funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of relative net asset value next determined after receipt of
an order in proper form. An exchange will be treated as a redemption and
purchase for tax purposes. Shares may be exchanged for shares of another fund
only if shares of such fund may legally be sold under applicable state laws. For
retirement and group plans having a limited menu of Prudential Mutual Funds, the
Exchange Privilege is available for those funds eligible for investment in the
particular program.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
Class A. Shareholders of the Fund may exchange their Class A shares for Class A
shares of certain other Prudential Mutual Funds, shares of Prudential Structured
Maturity Fund and Prudential Government Securities Trust (Intermediate Term
Series) and shares of the money market funds specified below. No fee or sales
load will be imposed upon the exchange. Shareholders of money market funds who
acquired such shares upon exchange of Class A shares may use the Exchange
Privilege only to acquire Class A shares of the Prudential Mutual Funds
participating in the Exchange Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential Money Mart Assets
Prudential Tax-Free Money Fund
Class B and Class C. Shareholders of the Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund, a
money market fund. No CDSC will be payable upon such exchange, but a CDSC may be
payable upon the redemption of Class B and Class C shares acquired as a result
of the exchange. The applicable sales charge will be that imposed by the fund in
which shares were initially purchased and the purchase date will be deemed to be
the date of the initial purchase, rather than the date of the exchange.
Class B and Class C shares of the Fund may also be exchanged for shares of
an eligible money market fund without imposition of any CDSC at the time of
exchange. Upon subsequent redemption from such money market fund or after
re-exchange into the Fund, such shares may be subject to the CDSC calculated
without regard to the time such shares were held in the money market fund. In
order to minimize the period of time in which shares are subject to a CDSC
shares exchanged out of the money market fund will be exchanged on the basis of
their remaining holding periods, with the longest remaining holding periods
being transferred first. In measuring the time period shares are held in a money
market fund and "tolled" for purposes of calculating the CDSC holding period,
exchanges are deemed to have been made on the last day of the month. Thus, if
shares are exchanged into the Fund from a money market fund during the month
(and are held in the Fund at the end of the month), the entire month will be
included in the CDSC holding period. Conversely, if shares are exchanged into a
money market fund prior to the last day of the month (and are held in the money
market fund on the last day of the month), the entire month will be excluded
from the CDSC holding period. For purposes of calculating the seven year holding
period applicable to the Class B conversion feature, the time period during
which Class B shares were held in a money market fund will be excluded.
B-23
<PAGE>
At any time after acquiring shares of other funds participating in the
Class B and Class C exchange privilege, a shareholder may again exchange those
shares (and any reinvested dividends and distributions) for Class B and Class C
shares of the Fund, respectively, without subjecting such shares to any CDSC.
Shares of any fund participating in the Class B or Class C exchange privilege
that were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares of other funds, respectively, without
being subject to any CDSC.
Class Z. Class Z shares may be exchanged for Class Z shares of the funds
listed below which participate in the PSI 401(k) Plan. No fee or sales load will
be imposed upon the exchange.
Prudential Allocation Fund
(Balanced Portfolio)
Prudential Equity Income Fund
Prudential Equity Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
(Money Market Series)
Prudential Growth Opportunity Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential MoneyMart Assets, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Utility Fund, Inc.
Additional details about the Exchange Privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating to
such fund's shares
Dollar Cost Averaging
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.(1)
Thefollowing chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)
Period of
Monthly investments: $100,000 $150,000 $200,000 $250,000
- -------------------- -------- -------- -------- --------
25 Years ................. $ 110 $ 165 $ 220 $ 275
20 Years ................. 176 264 352 440
15 Years ................. 296 444 592 740
10 Years ................. 555 833 1,110 1,388
5 Years .................. 1,371 2,057 2,742 3,428
See "Automatic Savings Accumulation Plan."
- ----------
(1) Source information concerning the costs of education at public and
private universities is available from The College Board Annual Survey of
Colleges, 1993. Average costs for private institutions include tuition, fees,
room and board for the 1993-1994 academic year.
(2) The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that an
investor's shares when redeemed may be worth more or less than their original
cost.
B-24
<PAGE>
Automatic Savings Accumulation Plan (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account or
Prudential Securities Account (including a Command Account) to be debited to
invest specified dollar amounts in shares of the Fund. The investor's bank must
be a member of the Automatic Clearing House System. Stock certificates are not
issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, PrudentialSecurities or Prusec.
Systematic Withdrawal Plan
A systematic withdrawal plan is available to shareholders through
Prudential Securities or the Transfer Agent. Such withdrawal plan provides for
monthly or quarterly checks in any amount, except as provided below, up to the
value of the shares in the shareholder's account. Withdrawals of Class B or
Class C shares may be subject to a CDSC. See "Shareholder Guide--How to Sell
Your Shares--Contingent Deferred Sales Charges" in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment
Account--Automatic Reinvestment of Dividends and/or Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the sales charge applicable to (i) the purchase of Class
A shares and (ii) the withdrawal of Class B and Class C shares. Each shareholder
should consult his or her own tax adviser with regard to the tax consequences of
the systematic withdrawal plan, particularly if used in connection with a
retirement plan.
Tax-Deferred Retirement Plans
Various qualified retirement plans, including a 401(k) Plan, self-directed
individual retirement accounts and "tax sheltered accounts" under Section
403(b)(7) of the Internal Revenue Code are available through the Distributor.
These plans are for use by both self-employed individuals and corporate
employers. These plans permit either self-direction of accounts by participants
or a pooled account arrangement. Information regarding the establishment of
these plans, the administration, custodial fees and other details are available
from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
Tax-Deferred Retirement Accounts
Individual Retirement Accounts. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
B-25
<PAGE>
Tax-Deferred Compounding (1)
Contributions Personal
Made Over: Savings IRA
- ----------- --------- -----
10 years $ 26,165 $ 31,291
15 years 44,676 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
- ----------
(1) The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings in
the IRA account will be subject to tax when withdrawn from the account.
Mutual Fund Programs
From time to time, the Fund may be included in a mutual fund program with
other Prudential Mutual Funds. Under such a program, a group of portfolios will
be selected and thereafter promoted collectively. Typically, these programs are
created with an investment theme, e.g., to seek greater diversification,
protection from interest rate movements or access to different management
styles. In the event such a program is instituted, there may be a minimum
investment requirement for the program as a whole. The Fund may waive or reduce
the minimum initial investment requirements in connection with such a program.
The mutual funds in the program may be purchased individually or as a part
of the program. Since the allocation of portfolios included in the program may
not be appropriate for all investors, investors should consult their Prudential
Securities Financial Adviser or Prudential/Pruco Securities Representative
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
PERFORMANCE INFORMATION
Average Annual Total Return. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares. See "How the Fund
Calculates Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P(1+T)^n = ERV
Where: P = a hypothetical initial payment of $1000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical
$1,000 payment made at the beginning of the 1, 5 or 10 year
periods.
Average annual total return takes into account any applicable initial or
contingent deferred sales charge but does not take into account any federal or
state income taxes that may be payable upon redemption.
The average annual total return for Class A shares for the one year, five
year and and since inception (January 22, 1990) periods ended October 31, 1995
were 0.45%, 10.72% and 6.94%, respectively, with and without the subsidy of
expenses. The average annual total return with respect to the Class B shares of
the Fund for the one, five and ten year periods ended on October 31, 1995 was
(0.02)%, 10.92% and 11.43%, respectively. The average annual total return with
respect to the Class B shares of the Fund for the one, five and ten year periods
ended on October 31, 1995, would have been (.02)%, 10.92% and 11.40%,
respectively, without the subsidy of expenses. See "Manager." The average annual
total return for Class C shares for the one year and since-inception period
(August 1, 1994) ended October 31, 1995 was 3.98% and 6.93%, respectively.
During these periods, no Class Z shares were outstanding.
Yield. The Fund may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B, Class
C and Class Z shares. This yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:
YIELD = 2[(((a-b)/cd)+1)^6-1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends. d = the maximum
offering price per share on the last day of the period.
B-26
<PAGE>
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period. Yields for the Fund will vary based on a number of factors
including changes in net asset value, market conditions, the level of interest
rates and the level of Fund income and expenses.
Aggregate Total Return. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares. See "How the Fund Calculates Performance" in the
Prospectus. Aggregate total return represents the cumulative change in the value
of an investment in the Fund and is computed according to the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1000.
ERV = ending redeemable value at the end of the 1,5 or 10
year periods (or fractional portion thereof) of a
hypothetical $1000 payment made at the beginning of the
1, 5 or 10 year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
The aggregate total return with respect to the Class A shares of the Fund
for the one year, five year and since-inception period (January 22, 1990) ended
October 31, 1995 was 5.74%, 75.12% and 55.05%, respectively, with and without
the subsidy of expenses. The aggregate total return with respect to the Class B
shares of the Fund for the one, five and ten year periods ended on October 31,
1995 was 4.98%, 68.91% and 195.03%, respectively. The aggregate total return
with respect to the Class B shares of the Fund for the one, five and ten year
periods ended on October 31, 1995, would have been 4.98%, 68.91% and 194.95%,
respectively, without the subsidy of expenses. See"Manager." The aggregate total
return for Class C shares for the one year and since-inception period (August 1,
1994) ended October 31, 1995 was 4.98% and 8.72%, respectively. During these
periods no Class Z shares were outstanding.
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long term and the rate of inflation.(1)
PERFORMANCE
COMPARISON OF DIFFERENT
TYPES OF INVESTMENTS
OVER THE LONG TERM
(1/1926-12/1994)
Common Stocks 10.2%
Long-Term Govt. Bonds 4.8%
Inflation 3.1%
- ----------
(1) Source: Ibbotson Associates, Stocks, Bonds, Bills and Inflation--1995
Yearbook (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. Common stock returns
are based on the Standard and Poor's 500 Stock Index, a market-weighted,
unmanaged index of 500 common stocks in a variety of industry sectors. It is a
commonly used indicator of broad stock price movements. This chart is for
illustrative purposes only and is not intended to represent the performance of
any particular investment or fund. Investors cannot invest directly in an index.
Past performance is not a guarantee of future results.
B-27
<PAGE>
TAXES
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code for each taxable
year. Accordingly, the Fund must, among other things, (a) derive at least 90% of
its gross income from dividends, interest, proceeds from loans of securities and
gains from the sale or other disposition of securities or foreign currencies, or
other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
securities or currencies; (b) derive less than 30% of its gross income from the
sale or other disposition of securities or certain options, futures and forward
contracts held less than three months; and (c) diversify its holdings so that,
at the end of each fiscal quarter, (i) at least 50% of the market value of the
Fund's assets is represented by cash, U.S. Government securities, securities of
other regulated investment companies and other securities, with such other
securities limited in respect of any one issuer to an amount not greater than 5%
of the Fund's assets, and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies). These
requirements may limit the Fund's ability to invest in other types of assets.
As a regulated investment company, the Fund will not be subject to federal
income tax on its net investment income and capital gains, if any, that it
distributes to its shareholders, provided (among other things) that at least 90%
of the Fund's net investment income including net short-term capital gains
earned in the taxable year is distributed. The Fund intends to distribute
annually to its shareholders all of its taxable net investment income, which
includes dividends, interest and any net short-term capital gains in excess of
net long-term capital losses. The Board of Directors of the Fund will determine
once a year whether to distribute any net long-term capital gains in excess of
any net short-term capital losses. In determining the amount of capital gains to
be distributed, any capital loss carryovers from prior years will be offset
against capital gains. A 4% nondeductible excise tax will be imposed on the Fund
to the extent the Fund does not meet certain distribution requirements by the
end of each calendar year.
Gains or losses attributable to foreign currency contracts, or to
fluctuations in exchange rates between the time the Fund accrues income,
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such income or pays such liabilities, are treated as
ordinary income or ordinary loss for federal income tax purposes. Similarly,
gains or losses on the disposition of debt securities held by the Fund, if any,
denominated in a foreign currency, to the extent attributable to fluctuations in
exchange rates between the acquisition and disposition dates are also treated as
ordinary income or loss.
Gains or losses on sales of securities by the Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year except in certain cases where the Fund acquires a put or
writes a call thereon. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will generally be treated as gains and
losses from the sale of securities. If an option written by the Fund on
securities lapses or is terminated through a closing transaction, such as a
purchase by the Fund of the option from its holder, the Fund will generally
realize short-term capital gain or loss, depending on whether the premium income
is greater or less than the amount paid by the Fund in the closing transaction.
If securities are sold by the Fund pursuant to the exercise of a call option
written by it, the Fund will include the premium received in the sale proceeds
of the securities delivered in determining the amount of gain or loss on the
sale. The requirement that the Fund derive less than 30% of its gross income
from gains from the sale of stocks or securities held less than three months may
limit the Fund's ability to write or acquire options. Certain of the Fund's
transactions may be subject to wash sale and short sale provisions of the
Internal Revenue Code which may, among other things, require the Fund to defer
losses. In addition, debt securities acquired by the Fund may be subject to
original issue discount and market discount rules which may, among other things,
cause the Fund to accrue income in advance of the receipt of cash with respect
to interest.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward foreign currency exchange contracts in which the
Fund may invest. See "Investment Objective and Policies." These investments will
generally constitute Section 1256 contracts and will be required to be"marked to
market" for federal income tax purposes at the end of the Fund's taxable year;
that is, treated as having been sold at market value. Sixty percent of any
capital gain or loss recognized on such deemed sales and on actual dispositions
will be treated as long-term capital gain or loss, and the remainder will be
treated as short-term capital gain or loss.
Forward currency contracts, options and futures contracts entered into by
the Fund may create "straddles" for federal income tax purposes and this may
affect the character and timing of gains or losses realized by the Fund on such
contracts or options or on the underlying securities. Straddles may also result
in the loss of the holding period of underlying property, and therefore, the
Fund's ability to enter into forward currency contracts, options and futures
contracts may be limited by the 30% of gross income test described above.
A "passive foreign investment company" ("PFIC") is a foreign corporation
that, in general, meets either of the following tests: (a) at least 75% of its
gross income is passive or (b) an average of at least 50% of its assets produce,
or are held for the
B-28
<PAGE>
production of, passive income. If the Fund acquires and holds stock in a
PFIC beyond the end of the year of its acquisition, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock or of any gain from disposition of the stock (collectively "PFIC income"),
plus interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. If the Fund elects to treat any PFIC in which it
invests as a "qualified electing fund," then in lieu of the foregoing tax and
interest obligation, the Fund will be required to include in income each year
its pro rata share of the qualified electing fund's annual ordinary earnings and
net capital gain, even if they are not distributed to the Fund; those amounts
would be subject to the distribution requirements applicable to the Fund
described above. It may be very difficult, if not impossible, to make this
election because of certain requirements thereof. Under proposed Treasury
regulations, if the Fund does not or cannot elect to treat such a PFIC as a
"qualified electing fund", the Fund can make a "mark-to-market" election, i.e.,
treat the shares of the PFIC as sold on the last day of the Fund's taxable year,
and thus avoid the special tax and interest charge. The gains the Fund
recognizes from the mark-to-market election would be included as ordinary income
in the net investment income the Fund must distribute to shareholders,
notwithstanding that the Fund would receive no cash in respect of such gains.
Dividends of net investment income will be taxable to a U.S. shareholder as
ordinary income regardless of whether such shareholder receives such dividends
in additional shares or in cash. Dividends received from the Fund will be
eligible for the dividends received deduction for corporate shareholders only to
the extent that the Fund's income is derived from certain dividends-received
from domestic corporations. The amount of dividends qualifying for the
dividends-received deduction will be designated as such in a written notice to
shareholders mailed not later than 60 days after the end of the Fund's taxable
year. Distributions of net long-term capital gains, if any, will be taxable as
long-term capital gains regardless of whether the shareholder receives such
distribution in additional shares or in cash and regardless of how long the
shareholder has held the Fund's shares, and will not be eligible for the
dividends received deduction for corporations. Any gain or loss realized upon a
sale or redemption of Fund shares by a shareholder who is not a dealer in
securities will be treated as long-term capital gain or loss if the shares have
been held for more than one year and otherwise as short-term capital gain or
loss. However, any loss realized by a shareholder upon the sale of shares in the
Fund held for six months or less will be treated as a long-term capital loss to
the extent of any net long-term capital gain distributions received by the
shareholder. Additionally, any loss realized on a sale, redemption or exchange
of shares of the Fund by a shareholder will be disallowed to the extent the
shares are replaced within a 61-day period (beginning 30 days before the
disposition of shares). Shares purchased pursuant to the reinvestment of a
dividend will constitute a replacement of shares.
Any dividends or capital gains distributions received by a shareholder will
have the effect of reducing the net asset value of the Fund's shares by the
exact amount of the dividend or capital gains distribution. If the net asset
value of the shares should be reduced below a shareholder's cost as a result of
a dividend or capital gains distribution, such dividend or capital gains
distribution, although constituting a return of capital, will be taxable as
described above. Prior to purchasing shares of the Fund, therefore, the investor
should carefully consider the impact of dividends or capital gains distributions
which are expected to be or have been announced.
A shareholder who sells or otherwise disposes of shares of the Fund within
90 days of acquisition may not be allowed to include certain sales charges
incurred in acquiring such shares for purposes of calculating gain or loss
realized upon a sale or exchange of shares of the Fund.
Distributions of net investment income made to a nonresident alien
individual, a nonresident alien fiduciary of a foreign estate or trust, foreign
corporation or foreign partnership (foreign shareholder) will be subject to U.S.
withholding tax at a rate of 30% (or lower treaty rate), unless the dividends
are effectively connected with the U.S. trade or business of the shareholder and
the shareholder complies with certain filing requirements. Gains realized upon
the sale or redemption of shares of the Fund by a foreign shareholder and
distributions of net long-term capital gains to a foreign shareholder will
generally not be subject to U.S. income tax unless the gain is effectively
connected with a trade or business carried on by the shareholder within the
United States or, in the case of a shareholder who is a nonresident alien
individual, the shareholder is present in the United States for more than 182
days during the taxable year and certain other conditions are met. In the case
of a foreign shareholder who is a nonresident alien individual, the Fund may be
required to withhold U.S. federal income tax at the rate of 31% of distributions
of net long-term capital gains unless IRS Form W-8 is provided. If distributions
are effectively connected with a U.S. trade or business carried on by a foreign
shareholder, distributions of net investment income and net long-term capital
gains will be subject to U.S. income tax at the graduated rates applicable to
U.S. citizens or domestic corporations. Transfers by gift of shares of the Fund
by a foreign shareholder who is a nonresident alien individual will not be
subject to U.S. federal gift tax, but the value of the shares of the Fund held
by such a shareholder at his death will be includable in his gross estate for
U.S. federal estate tax purposes. The tax consequences to a foreign shareholder
entitled to claim the benefits of an applicable tax treaty may be different from
those described herein. Foreign shareholders are advised to consult their own
tax advisers with respect to the particular tax consequences to them of an
investment in the Fund.
B-29
<PAGE>
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested in
various countries is not known.
If the Fund is liable for foreign taxes, the Fund expects to meet the
requirements of the Internal Revenue Code for "passing-through" to its
shareholders foreign income taxes paid, but there can be no assurance that the
Fund will be able to do so. Under the Internal Revenue Code, if more than 50% of
the value of the Fund's total assets at the close of its taxable year consists
of stock or securities of foreign corporations, the Fund will be eligible and
may file an election with the Internal Revenue Service to "pass-through" to the
Fund's shareholders the amount of foreign income taxes paid by the Fund.
Pursuant to this election shareholders will be required to: (i) include in gross
income (in addition to taxable dividends actually received) their pro rata share
of the foreign income taxes paid by the Fund; (ii) treat their pro rata share of
foreign income taxes as paid by them; and (iii) either deduct their pro rata
share of foreign income taxes in computing their taxable income or, subject to
certain limitations, use it as a foreign tax credit against U.S. income taxes
imposed on foreign source income. For this purpose, the portion of dividends
paid by the Fund from its foreign source income will be treated as such. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. A shareholder that is a nonresident alien individual or foreign
corporation may be subject to U.S. withholding tax on the income resulting from
the election described in this paragraph, but may not be able to claim a credit
or deduction against such tax for the foreign taxes treated as having been paid
by such shareholder. A tax-exempt shareholder will not ordinarily benefit from
this election. The amount of foreign taxes for which a shareholder may claim a
credit in any year will generally be subject to various limitations including a
separate limitation for "passive income," which includes, among other things,
dividends, interest and certain foreign currency gains.
Each shareholder will be notified within 60 days after the close of the
Fund's taxable year whether the foreign income taxes paid by the Fund will
"pass-through" for that year and, if so, such notification will designate (a)
the shareholder's portion of the foreign income taxes paid to each such country
and (b) the portion of the dividend which represents income derived from sources
within each such country.
The per share dividends on Class B and Class C shares will be lower than
the per share dividends on Class A shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The per
share distributions of net capital gains, if any, will be paid in the same
amount for Class A, Class B and Class C shares. See "Net Asset Value."
Distributions may be subject to additional state and local taxes.
Pennsylvania Personal Property Tax. The Fund has received a written letter
of determination from the Pennsylvania Department of Revenue that the Fund will
be subject to the Pennsylvania foreign franchise and corporate net income tax by
reason of the Fund's business activities in Pennsylvania. Accordingly, it is
believed that Fund shares are exempt from Pennsylvania personal property taxes.
The Fund anticipates that it will continue such business activities but reserves
the right to suspend them at any time,resulting in the termination of the
exemption.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND
INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and in that capacity maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Subcustodians provide custodial
services for the Fund's foreign assets held outside the United States. See
"General Information--Custodian and Transfer and Dividend Disbursing Agent" in
the Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the Fund.
Its mailing address is P.O. Box 15005, New Brunswick, New Jersey 08906-5005.
PMFS is a wholly-owned subsidiary of PMF. PMFS provides customary transfer
agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions, and related
functions. For these services, PMFS receives an annual fee per shareholder
account, a new account set-up fee for each manually-established account and a
monthly inactive zero balance account fee per shareholder account. PMFS is also
reimbursed for its out-of-pocket expenses, including but not limited to
postage,stationery, printing, allocable communications expenses and other costs.
For the fiscal year ended October 31, 1995, the Fund incurred fees of
approximately $875,000 for the services of PMFS.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, serves as the Fund's independent accountants, and in that capacity audits
the Fund's annual financial statements.
B-30
<PAGE>
Portfolio of Investments as of October 31, 1995 PRUDENTIAL GLOBAL FUND, INC.
================================================================================
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
- ----------------------------------------------------------------
<C> <S> <C>
LONG-TERM INVESTMENTS--96.1%
COMMON STOCKS--94.9%
- ----------------------------------------------------------------
Australia--8.0%
371,500 Brambles Industries, Ltd. (Business
& Public Services) $ 3,948,457
518,417 Broken Hill Proprietary Co., Ltd.
(Other Energy Sources) 7,017,689
1,374,919 Coca-Cola Amatil, Ltd. (Beverages &
Tobacco) 10,635,403
1,486,600 Nine Network Australia, Ltd.
(Broadcasting & Publishing) 4,731,007
62,900 Qantas Airways Limited (ADR)
(Airlines) 1,111,020
398,000 Qantas Airways, Ltd.*
(Transportation-Airlines) 702,998
1,794,125 Western Mining Corp. Holdings, Ltd.
(Metals-Non Ferrous) 11,501,327
-------------
39,647,901
- ----------------------------------------------------------------
Belgium--0.7%
5,000 Bekaert S.A., N.V. (Industrial
Components) 3,676,534
- ----------------------------------------------------------------
Federal Republic of Germany--3.5%
9,920 Linde AG (Machinery & Engineering) 6,089,777
70,000 Sap Ag (Data Processing &
Reproduction) 11,088,322
-------------
17,178,099
- ----------------------------------------------------------------
Finland--2.5%
213,700 Nokia Corp. (Telecommunication
Equipment) 12,222,782
- ----------------------------------------------------------------
France--6.4%
11,100 Carrefour (Retail) 6,523,866
45,000 Imetal S.A. (Misc. Materials &
Commodities) 5,304,356
4,235 LaFarge Coppee (New) (Building
Materials & Components) 280,886
57,255 LaFarge Coppee (Old) (Building
Materials & Components) 3,797,433
34,000 Legrand S.A. (Electrical Components) 5,691,541
18,300 Plastic Omnium (Automobilies & Auto
Parts) 1,198,391
10,000 Sgs Thomson Microelectronics*
(Electronic Components) 461,471
88,000 Sgs Thomson Microelectronics*
(Electronic Components) 3,982,000
95,300 Valeo (Automotive) 4,308,105
-------------
31,548,049
- ----------------------------------------------------------------
Hong Kong--6.7%
6,531,213 CDL Hotels International Ltd.
(Leisure & Tourism) 2,956,714
2,350,000 CITIC Pacific, Ltd. (Multi-Industry) 7,340,615
1,852,000 Guoco Group, Ltd. (Multi-Industry) 8,575,738
8,990,000 Hung Hing Printing Group, Ltd.
(Forest Products & Paper) 1,866,303
1,459,000 Hutchison Whampoa, Ltd.
(Multi-Industry) 8,039,191
1,130,000 New World Development Co., Ltd.
(Property Developement) 4,399,390
-------------
33,177,951
- ----------------------------------------------------------------
Indonesia--0.3%
1,549,000 Kabel Metal Industries, Ltd.
(Industrial Components) 1,406,787
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-31
<PAGE>
Portfolio of Investments as of October 31, 1995 PRUDENTIAL GLOBAL FUND, INC.
================================================================================
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
- ----------------------------------------------------------------
<C> <S> <C>
Italy--1.9%
142,400 Gucci Group N V* (Retail) $ 4,272,000
3,075,000 Telecom Italia Mob*
(Telecommunications-Unregulated) 5,179,252
-------------
9,451,252
- ----------------------------------------------------------------
Japan--14.0%
159,000 Aiwa Co. (Appliances & Household
Durables) 3,452,127
23,500 Autobacs Seven Co., (Retail) 2,217,848
243,000 Daibiru Corp. (Property Investment) 2,471,589
860 Ddi Corp.
(Telecommunications-Unregulated) 6,972,518
45,000 Keyence Corp. (Electronic Components
& Instruments) 5,545,232
77,000 Kyocera Corp. (Electronic Components
& Instruments) 6,310,611
425,000 Mitsui Fudosan Co., Ltd. (Property
Investment) 4,863,081
111,000 Nichiei Co. (Financial Services) 6,893,399
145,000 Nintendo Co., Ltd. (Recreation &
Other Consumer Goods) 10,664,059
92,640 Nissen Co., Ltd. (Retail) 2,672,743
248,000 Omron Corp. (Electronic Components &
Instruments) 5,796,773
106,000 Onward Kashiyama (Textile-Apparel
Manufacturing) 1,461,712
96,000 Rohm Co., Ltd. (Electronic
Components & Instruments) 5,830,416
92,300 Sony Music Entertainment (Recreation
& Other Consumer Goods) 3,953,780
-------------
69,105,888
- ----------------------------------------------------------------
Korea--2.4%
9,408 Pohang Iron & Steel Co., Ltd.
(Metals-Steel) 818,889
829 Samsung Electronics (New)
(Electronic Components &
Instruments) 179,311
10,597 Samsung Electronics Co.* (New)
(Electronic Components &
Instruments) 2,333,653
39,330 Samsung Electronics Co., Ltd.*
(Electronic Components &
Instruments) 8,635,483
-------------
11,967,336
- ----------------------------------------------------------------
Malaysia--3.1%
5,292,000 IJM Corporation Berhad
(Construction) 8,708,882
3,003,000 Renong Berhad (Multi-Industry) 4,587,260
790,000 Technology Resources Industries
Berhad (Utilities-Telephones) 2,006,102
-------------
15,302,244
- ----------------------------------------------------------------
Mexico--1.1%
573,700 Apasco, S.A. (Building Materials &
Components) 2,101,554
1,596,400 Cifra, S.A. de C.V. (Retail) 1,698,345
866,900 Fomento Economico Mexicano, S.A. de
C.V. (Beverages & Tobacco) 1,795,852
-------------
5,595,751
- ----------------------------------------------------------------
Netherlands--1.6%
44,600 Heineken N.V. (Beverages & Tobacco) 7,909,304
- ----------------------------------------------------------------
New Zealand--1.5%
2,583,500 Fletcher Challenge, Ltd. (Forest
Products & Paper) 6,833,845
366,563 Fletcher Forestry Challenge, Ltd.
(Forest Products & Paper) 505,367
-------------
7,339,212
- ----------------------------------------------------------------
Singapore--4.2%
410,000 Fraser & Neave Ltd. (Beverages &
Tobacco) 4,847,434
1,099,000 Over Seas Union Bank (Banking) 6,846,867
1,083,250 Sembawang Maritime, Ltd. (Energy
Equipment & Services) 3,665,795
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-32
<PAGE>
Portfolio of Investments as of October 31, 1995 PRUDENTIAL GLOBAL FUND, INC.
================================================================================
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
- ----------------------------------------------------------------
<C> <S> <C>
Singapore (cont'd.)
266,000 United Overseas Bank, Ltd. (Banking) $ 2,335,150
1,737,000 Wing Tai Holdings (Property
Developement) 3,012,850
-------------
20,708,096
- ----------------------------------------------------------------
Spain--2.9%
22,132 Acerinox, S.A. (Metals-Steel) 2,328,731
26,900 Banco Popular Esp (Banking) 4,270,960
236,062 Centros Commerciale (Pryca) (Retail) 5,025,680
197,000 Dragados y Construcciones
(Construction) 2,580,962
-------------
14,206,333
- ----------------------------------------------------------------
Sweden--4.3%
180,600 Astra B Free (Health & Personal
Care) 6,532,630
75,000 Autoliv Ab (Automobilies & Auto
Parts) 4,306,707
84,200 Hennes & Mauritz B Free (Retail) 5,507,581
93,600 Missouri Och Domsjo AB (Forest
Products & Paper) 4,768,169
-------------
21,115,087
- ----------------------------------------------------------------
Thailand--0.4%
116,202 Land & House Public Co., Ltd.
(Property Developement) 1,874,747
- ----------------------------------------------------------------
United Kingdom--9.7%
319,700 Barclays Bank PLC (Banking) 3,747,729
29,000 Britannic Assured (Insurance) 323,899
1,025,800 British Sky Broadcast (Broadcasting
& Publishing) 6,150,483
319,700 Carlton Communications PLC
(Broadcasting & Publishing) 4,848,246
362,000 Commercial Union PLC (Insurance) 3,516,287
649,300 Guest Keen & Nettlefolds
(Automotive) 8,273,734
540,200 J. Sainsbury PLC (Retail) 3,606,404
688,500 Siebe PLC (Machinery & Engineering) 8,190,853
2,223,390 Vodafone Group PLC
(Telecommunications-Unregulated) 9,104,605
-------------
47,762,240
- ----------------------------------------------------------------
United States--19.7%
288,806 Mattel, Inc. (Recreation & Other
Consumer Goods) 8,303,172
157,000 McDonald's Corp. (Food Serving-Fast
Foods) 6,437,000
290,100 MCI Communications Corp.
(Telecommunications) 7,234,369
118,500 Microsoft Corp.* (Computer Software
& Services) 11,850,000
195,100 Mirage Resorts, Inc.* (Gaming) 6,389,525
65,700 Mobil Corp. (Energy Sources) 6,619,275
141,400 Motorola, Inc. (Telecommunication
Equipment) 9,279,375
42,000 Nextel Communications, Inc.*
(Telecommunications) 582,750
208,900 Norwest Corp. (Banking) 6,162,550
165,000 Oracle Systems Corp.* (Computer
Software & Services) 7,198,125
270,700 Silicon Graphics, Inc.* (Electronic
Components) 9,000,775
67,000 Texas Instruments Inc. (Electronic
Components) 4,572,750
59,500 Tiffany & Co. (Retail) 2,595,687
121,800 Time Warner, Inc. (Entertainment) 4,445,700
138,900 Viacom Inc.* (Entertainment) 6,910,275
-------------
97,581,328
-------------
Total common stocks
(cost US$370,579,469) 468,776,921
-------------
Warrants
WARRANTS*--1.2%
- ----------------------------------------------------------------
France
LaFarge Coppee,
3,500 Warrants expiring April '96 @ FF460
(Building Materials & Components) 4,226
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-33
<PAGE>
Portfolio of Investments as of October 31, 1995 PRUDENTIAL GLOBAL FUND, INC.
================================================================================
<TABLE>
<CAPTION>
Warrants Description Value (Note 1)
- ----------------------------------------------------------------
<C> <S> <C>
Japan--0.7%
Autobacs Seven Co.
400 expiring Mar. '96 @ Y8,231 (Retail) $ 755,000
Nissen Co., Ltd.
1,136 expiring Nov. '96 @ Y1,681 (Retail) 1,425,745
Nitori Co.,
5,250 expiring Feb. '98 @ Y3,268 (Retail) 535,856
Onward Kashiyama
636 expiring March '96 @ Y (Textiles &
Apparel) 838,725
-------------
3,555,326
- ----------------------------------------------------------------
Singapore--0.5%
United Overseas Bank, Ltd.,
666,800 expiring June '97 @SGO (Banking) 2,525,579
-------------
Total warrants
(cost $6,241,321) 6,085,131
-------------
Total long-term investments
(cost US$376,820,790) 474,862,052
-------------
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
SHORT-TERM INVESTMENTS--1.2%
- ----------------------------------------------------------------
<C> <S> <C>
Repurchase Agreement--1.2%
USD5,880 Joint Repurchase Agreement Account,
2.93%, 11/1/95
(cost US$5,880,000; Note 5) $ 5,880,000
-------------
- ----------------------------------------------------------------
Total Investments--97.3%
(cost US$382,700,790; Note 4) 480,742,052
Other assets in excess of
liabilities--2.7% 13,490,762
-------------
Net Assets--100% $ 494,232,814
=============
- ---------------
*Non-income producing security.
ADR--American Depository Receipt
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-34
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL GLOBAL FUND, INC.
================================================================================
<TABLE>
<CAPTION>
Assets October 31, 1995
----------------
<S> <C>
Investments, at value (cost $382,700,790)................................................................. $480,742,052
Foreign currency, at value (cost $12,271,288)............................................................. 12,357,550
Cash...................................................................................................... 161,693
Forward currency contracts--net amount receivable from counterparties..................................... 4,787,048
Receivable for investments sold........................................................................... 3,468,241
Dividends and interest receivable......................................................................... 1,055,406
Receivable for Fund shares sold........................................................................... 615,942
Deferred expenses and other assets........................................................................ 10,652
------------
Total assets........................................................................................... 503,198,584
------------
Liabilities
Payable for Fund shares reacquired........................................................................ 6,952,740
Forward currency contracts--net amount payable to counterparties.......................................... 896,982
Accrued expenses.......................................................................................... 461,162
Due to Manager............................................................................................ 320,126
Due to Distributors....................................................................................... 262,288
Withholding taxes payable................................................................................. 71,676
Deferred Thailand capital gains tax....................................................................... 796
------------
Total liabilities...................................................................................... 8,965,770
------------
Net Assets................................................................................................ $494,232,814
============
Net assets were comprised of:
Common stock, at par................................................................................... $ 324,170
Paid-in capital in excess of par....................................................................... 364,816,144
------------
365,140,314
Undistributed net investment income.................................................................... 3,385,062
Accumulated net realized gain on investments and foreign currency transactions......................... 23,692,735
Net unrealized appreciation on investments and foreign currencies...................................... 102,014,703
------------
Net assets, October 31, 1995.............................................................................. $494,232,814
============
Class A:
Net asset value and redemption price per share
($222,002,113 / 14,304,949 shares of common stock issued and outstanding)........................... $15.52
Maximum sales charge (5% of offering price)............................................................ .82
------
Maximum offering price to public....................................................................... $16.34
======
Class B:
Net asset value, offering price and redemption price per share
($268,498,121 / 17,863,731 shares of common stock issued and outstanding)........................... $15.03
======
Class C:
Net asset value, offering price and redemption price per share
($3,732,580 / 248,353 shares of common stock issued and outstanding)................................ $15.03
======
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-35
<PAGE>
PRUDENTIAL GLOBAL FUND, INC.
Statement of Operations
================================================================================
<TABLE>
<CAPTION>
Year Ended
Net Investment Loss October 31, 1995
----------------
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $725,999)............................. $ 6,225,155
Interest.................................... 492,191
------------
Total income............................. 6,717,346
------------
Expenses
Management fee.............................. 3,481,921
Distribution fee--Class A................... 435,790
Distribution fee--Class B................... 2,648,693
Distribution fee--Class C................... 22,842
Transfer agent's fees and expenses.......... 1,000,000
Custodian's fees and expenses............... 759,000
Reports to shareholders..................... 250,000
Registration fees........................... 135,000
Directors' fees and expenses................ 88,000
Legal fees and expenses..................... 67,000
Audit fees and expenses..................... 52,000
Insurance expense........................... 10,000
Miscellaneous............................... 28,023
------------
Total operating expenses................. 8,978,269
------------
Net investment loss........................... (2,260,923)
------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain on:
Investment transactions..................... 24,807,445
Foreign currency transactions............... 507,677
------------
25,315,122
------------
Net change in unrealized
appreciation/depreciation on:
Investments (net of change in deferred
Thailand capital gains tax of $55,905)... (2,816,898)
Foreign currencies.......................... 3,991,517
------------
1,174,619
------------
Net gain on investments and foreign
currencies.................................. 26,489,741
------------
Net Increase in Net Assets
Resulting from Operations..................... $ 24,228,818
============
</TABLE>
PRUDENTIAL GLOBAL FUND, INC.
Statement of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
Year Ended October 31,
Increase (Decrease) ----------------------
in Net Assets 1995 1994
---- ----
Operations
<S> <C> <C>
Net investment loss............. $ (2,260,923) $ (3,531,034)
Net realized gain on investment
and foreign currency
transactions................. 25,315,122 18,037,672
Net change in unrealized
appreciation/depreciation of
investments and foreign
currencies................... 1,174,619 29,668,338
------------ ------------
Net increase in net assets
resulting from operations.... 24,228,818 44,174,976
------------ ------------
Net equalization credits.......... 712,010 193,130
------------ ------------
Distributions paid to shareholders
from net realized gains on
investment and foreign currency
transactions
Class A......................... (1,006,573) --
Class B......................... (5,394,512) --
Class C......................... (20,921) --
------------ ------------
(6,422,006) --
------------ ------------
Fund share transactions (net of
share conversions) (Note 6)
Proceeds from shares sold....... 323,054,908 373,867,022
Net asset value of shares issued
in reinvestment of
distributions................ 6,072,122 --
Cost of shares reacquired....... (338,953,005) (225,849,388)
------------ ------------
Net increase (decrease) in net
assets from Fund share
transactions................. (9,825,975) 148,017,634
------------ ------------
Total increase.................... 8,692,847 192,385,740
Net Assets
Beginning of year................. 485,539,967 293,154,227
------------ ------------
End of year....................... $494,232,814 $485,539,967
============ ============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-36
<PAGE>
Notes to Financial Statements PRUDENTIAL GLOBAL FUND, INC.
================================================================================
Prudential Global Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The investment objective of the Fund is to seek long-term capital growth, with
income as a secondary objective, by investing in a diversified portfolio of
securities consisting of marketable securities of U.S. and non-U.S. issuers.
- --------------------------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuation: Securities traded on an exchange (whether domestic or
foreign) are valued at the last reported sales price on the primary exchange on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported bid and asked prices.
Short-term securities which mature in more than 60 days are valued based upon
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost which approximates market value.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at the
closing daily rate of exchange as reported by a major bank;
(ii) purchases and sales of investment securities, income and expenses--at the
rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the fiscal year, the Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities held at fiscal year end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of long-term portfolio securities sold
during the fiscal year.
Net realized gains on foreign currency transactions of $507,677 represent net
foreign exchange gains or losses from holdings of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized currency gains and losses from
valuing foreign currency denominated assets and liabilities (other than
investments) at fiscal year end exchange rates are reflected as a component of
net unrealized appreciation on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
Forward Currency Contracts: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The Fund enters into forward currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings or on specific receivables and payables denominated in a foreign
currency. The contracts are valued daily at current exchange rates and any
unrealized gain or loss is included in net unrealized appreciation or
depreciation on investments. Gain or loss is realized on the settlement date of
the contract equal to the difference between the settlement value of the
original and renegotiated forward contracts. This gain or loss, if any, is
included in net realized gain (loss) on foreign currency transactions. Risks may
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from investment and
currency transactions are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date, and interest income is recorded on
an accrual basis.
- --------------------------------------------------------------------------------
B-37
<PAGE>
Notes to Financial Statements PRUDENTIAL GLOBAL FUND, INC.
================================================================================
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares of the Fund based
upon the relative proportion of net assets of each class at the beginning of the
day.
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to decrease paid-in capital in excess of par by $1,545,933,
increase undistributed net investment income by $3,170,874, and decrease
accumulated net realized gain on investments and foreign currency transactions
by $1,624,941 for the fiscal year ended October 31, 1995.
Dividends and Distributions: The Fund expects to pay dividends of net investment
income and distributions of net realized capital and currency gains, if any,
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends, interest and capital gains have been
provided for in accordance with the Fund's understanding of the applicable
country's tax rules and rates.
- --------------------------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
("PMF"). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation ("PIC"); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the cost of the subadviser's
services, the compensation of officers of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.
The management fee paid PMF is computed daily and payable monthly, at an annual
rate of .75 of 1% of the average daily net assets of the Fund.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. ("PMFD"), which acts as the distributor of the Class A shares
of the Fund, and with Prudential Securities Incorporated ("PSI"), which acts as
distributor of the Class B and Class C shares of the Fund (PMFD and PSI are
collectively referred to as the "Distributors"). The Fund compensates the
Distributors for distributing and servicing the Fund's Class A, Class B and
Class C shares, pursuant to plans of distribution, (the "Class A, B and C
Plans") regardless of expenses actually incurred by them. The distribution fees
are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PMFD for
distribution-related activities with respect to Class A shares at an annual rate
of up to .30 of 1% of the average daily net assets of the Class A shares, .75 of
1% of the average daily net assets up to the level of average daily net assets
as of February 26, 1986, plus 1% of the average daily net assets in excess of
such level of the Class B shares and 1% of average daily net assets of Class C
shares. Payments made pursuant to the Plans were .25 of 1%, .92% of 1% and 1% of
the average daily net assets of Class A, B and C shares, respectively, for the
year ended October 31, 1995.
PMFD has advised the Fund that it has received approximately $297,400 in
front-end sales charges resulting from sales of Class A shares during the year
ended October 31, 1995. From these fees, PMFD paid such sales charges to dealers
(PSI and Prusec) which in turn paid commissions to salespersons.
PSI has advised the Fund that for the year ended October 31, 1995, it received
approximately $812,000 in contingent deferred sales charges imposed upon certain
redemptions by Class B and C shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- --------------------------------------------------------------------------------
B-38
<PAGE>
Notes to Financial Statements PRUDENTIAL GLOBAL FUND, INC.
================================================================================
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services, Inc. ("PMFS"), a wholly owned subsidiary of
PMF, serves as the Fund's transfer agent and during the year ended October 31,
1995, the Fund incurred fees of approximately $875,000 for the services of PMFS.
As of October 31, 1995, approximately $76,500 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to non-affiliates.
For the year ended October 31, 1995, PSI and/or its foreign affiliates earned
approximately $20,800 in brokerage commissions from portfolio transactions
executed on behalf of the Fund.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended October 31, 1995 were $229,305,275 and $246,465,097,
respectively.
The United States federal income tax basis of the Fund's investments at October
31, 1995 was $382,899,108 and accordingly, net unrealized appreciation for
federal income tax purposes was $97,842,944 (gross unrealized
appreciation--$114,097,152; gross unrealized depreciation--$16,254,208).
At October 31, 1995, the Fund had outstanding forward currency contracts, both
to purchase and sell foreign currencies, as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Purchase Contract Payable Value Depreciation
- -------------------- --------------- ----------- --------------
<S> <C> <C> <C>
Japanese Yen,
expiring 5/15/95-
5/30/96........... $18,989,892 $18,092,910 $ (896,982)
=========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Sale Contract Receivable Value Appreciation
- ------------------- --------------- ----------- --------------
<S> <C> <C> <C>
Japanese Yen,
expiring 5/15/95
5/30/96.......... $22,879,958 $18,092,910 $4,787,048
=========== =========== ==========
</TABLE>
- --------------------------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Portfolio, along with other affiliated registered investment companies,
transfers uninvested cash balances into a single joint account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Treasury or Federal agency obligations. As of October 31,
1995, the Portfolio had a .63% undivided interest in the repurchase agreements
in the joint account. The undivided interest for the Fund represents $5,880,000
in principal amount. As of such date, each repurchase agreement in the joint
account and the value of the collateral therefor were as follows:
Goldman Sachs & Co., 5.88%, in the principal amount of $273,000,000, repurchase
price $273,044,590, due 11/1/95. The value of the collateral including accrued
interest is $278,460,050.
CS First Boston Corp., 5.90%, in the principal amount of $273,000,000,
repurchase price $273,044,742, due 11/1/95. The value of the collateral
including accrued interest is $278,529,780.
Smith Barney Inc., 5.93%, in the principal amount of $114,753,000, repurchase
price $114,771,902, due 11/1/95. The value of the collateral including accrued
interest is $117,048,982.
Bear Stearns & Co., 5.875% in the principal amount of $273,000,000, repurchase
price $273,044,552, due 11/1/95. The value of the collateral including accrued
interest is $278,800,077.
- --------------------------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase. There are 500 million shares of common stock, $.01 par
value per share, divided equally into three classes, designated Class A, Class B
and Class C common stock.
- --------------------------------------------------------------------------------
B-39
<PAGE>
Notes to Financial Statements PRUDENTIAL GLOBAL FUND, INC.
================================================================================
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------- ----------- -------------
<S> <C> <C>
Year ended October 31, 1995:
Shares sold....................... 14,310,794 $ 203,989,259
Shares issued in reinvestment of
distributions................... 73,418 983,611
Shares reacquired................. (15,121,426) (217,547,014)
----------- -------------
Net decrease in shares outstanding
before conversion............... (737,214) (12,574,144)
Shares issued upon conversion from
Class B......................... 10,085,947 130,068,677
----------- -------------
Net increase in shares
outstanding..................... 9,348,733 $ 117,494,533
========= =============
Year ended October 31, 1994:
Shares sold....................... 8,934,836 $ 124,979,118
Shares reacquired................. (7,169,344) (100,448,720)
----------- -------------
Net increase in shares
outstanding..................... 1,765,492 $ 24,530,398
========= =============
Class B
- -------
Year ended October 31, 1995:
Shares sold....................... 8,422,470 $ 116,118,701
Shares issued in reinvestment of
distributions................... 390,179 5,070,014
Shares reacquired................. (8,836,648) (120,783,109)
----------- -------------
Net decrease in shares outstanding
before conversion............... (23,999) 405,606
Shares reacquired upon conversion
into Class A.................... (10,370,444) (130,068,677)
----------- -------------
Net decrease in shares
outstanding..................... (10,394,443) $(129,663,071)
=========== =============
Year ended October 31, 1994:
Shares sold....................... 17,971,424 $ 247,670,808
Shares reacquired................. (9,114,786) (125,372,515)
----------- -------------
Net increase in shares
outstanding..................... 8,856,638 $ 122,298,293
Class C
- -------
Year ended October 31, 1995:
Shares sold....................... 210,290 $ 2,946,948
Shares issued in reinvestment of
distributions................... 1,419 18,497
Shares reacquired................. (46,329) (622,882)
----------- -------------
Net increase in shares
outstanding..................... 165,380 $ 2,342,563
=========== =============
August 3, 1994* through
October 31, 1994:
Shares sold....................... 84,982 $ 1,217,096
Shares reacquired................. (2,009) (28,153)
----------- -------------
Net increase in shares
outstanding..................... 82,973 $ 1,188,943
=========== =============
- ---------------
* Commencement of offering of Class C shares.
</TABLE>
- --------------------------------------------------------------------------------
Note 7. Dividends and Distributions
On December 7, 1995, the Board of Trustees of the Fund declared a long term
capital gain distribution of $0.715 per share for Class A, B and C Shares,
respectively, payable on December 15, 1995 to shareholders of record on December
12, 1995:
<TABLE>
<CAPTION>
Class B
Class A and C
------- -------
<S> <C> <C>
Long-Term Capital Gains..................... $0.715 $0.715
</TABLE>
- --------------------------------------------------------------------------------
B-40
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights PRUDENTIAL GLOBAL FUND, INC.
====================================================================================================================================
Class A
------------------------------------------------------------
Year Ended October 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
---------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of year............... $ 14.89 $ 13.17 $ 9.58 $ 10.08 $ 9.19
--------- -------- ------- ------- -------
Income from investment operations
Net investment income (loss)..................... .01 (.04) .02 .03 .07
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions.................................. .81 1.76 3.57 (.53) 1.02
--------- -------- ------- ------- -------
Total from investment operations............... .82 1.72 3.59 (.50) 1.09
--------- -------- ------- ------- -------
Less distributions
Dividends from net investment income............. -- -- -- -- (.16)
Distributions paid to shareholders from net
realized gains on investment and foreign
currency transactions......................... (.19) -- -- -- (.04)
--------- -------- ------- ------- -------
Total distributions............................ (.19) -- -- -- (.20)
--------- -------- ------- ------- -------
Net asset value, end of year..................... $ 15.52 $ 14.89 $ 13.17 $ 9.58 $ 10.08
========= ======== ======= ======= =======
TOTAL RETURN(b):................................. 5.74% 13.06% 37.47% (4.96)% 12.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).................... $ 222,002 $ 73,815 $42,021 $13,973 $14,154
Average net assets (000)......................... $ 174,316 $ 58,455 $21,409 $14,758 $10,593
Ratios to average net assets:
Expenses, including distribution fees.......... 1.51% 1.55% 1.56% 1.71% 1.72%
Expenses, excluding distribution fees.......... 1.26% 1.30% 1.36% 1.51% 1.52%
Net investment income (loss)................... .10% (0.29)% 0.20% 0.22% 0.65%
Portfolio turnover rate.......................... 50% 49% 69% 58% 126%
</TABLE>
- ---------------
(a) Based on average shares outstanding, by class.
(b) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-41
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights PRUDENTIAL GLOBAL FUND, INC.
====================================================================================================================================
Class B
---------------------------------------------------------------
Year Ended October 31,
---------------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
---------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of period............. $ 14.53 $ 12.94 $ 9.47 $ 10.05 $ 9.14
---------- -------- -------- -------- --------
Income from investment operations
Net investment loss.............................. (.11) (.13) (.04) (.05) --
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions.................................. .80 1.72 3.51 (.53) 1.02
---------- -------- -------- -------- --------
Total from investment operations............... .69 1.59 3.47 (.58) 1.02
---------- -------- -------- -------- --------
Less distributions
Dividends from net investment income............. -- -- -- -- (.07)
Distributions paid to shareholders from net
realized gains on investment and foreign
currency transactions......................... (.19) -- -- -- (.04)
---------- -------- -------- -------- --------
Total distributions............................ (.19) -- -- -- (.11)
---------- -------- -------- -------- --------
Net asset value, end of period................... $ 15.03 $ 14.53 $ 12.94 $ 9.47 $ 10.05
========= ======== ======== ======== ========
TOTAL RETURN(b):................................. 4.98% 12.29% 36.64% (5.77)% 11.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................. $ 268,498 $410,520 $251,133 $178,438 $249,582
Average net assets (000)......................... $ 287,656 $345,771 $183,741 $210,464 $253,866
Ratios to average net assets:
Expenses, including distribution fees.......... 2.19% 2.24% 2.24% 2.40% 2.44%
Expenses, excluding distribution fees.......... 1.27% 1.30% 1.36% 1.51% 1.53%
Net investment loss............................ (.84)% (0.97)% (0.39)% (0.47)% (0.01)%
Portfolio turnover rate.......................... 50% 49% 69% 58% 126%
</TABLE>
<TABLE>
<CAPTION>
Class C
----------------------------
August 1,
Year Ended Through
October 31, October 31,
1995 1994
------------ -----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of period............. $ 14.53 $ 14.03
-------- ---------
Income from investment operations
Net investment loss.............................. (.11) (.03)
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions.................................. .80 .53
-------- ---------
Total from investment operations............... .69 .50
-------- ---------
Less distributions
Dividends from net investment income............. -- --
Distributions paid to shareholders from net
realized gains on investment and foreign
currency transactions......................... (.19) --
-------- ---------
Total distributions............................ (.19) --
-------- ---------
Net asset value, end of period................... $ 15.03 $ 14.53
======== =========
TOTAL RETURN(b):................................. 4.98% 3.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................. $ 3,733 $ 1,205
Average net assets (000)......................... $ 2,284 $ 630
Ratios to average net assets:
Expenses, including distribution fees.......... 2.25% 2.63%(c)
Expenses, excluding distribution fees.......... 1.25% 1.63%(c)
Net investment loss............................ (.76)% (1.21)%(c)
Portfolio turnover rate.......................... 50% 49%
</TABLE>
- ---------------
(a) Based on average shares outstanding, by class.
(b) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for
periods of less than a full year are not annualized.
(c) Annualized.
(d) Commencement of offering of Class C shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-42
<PAGE>
Independent Auditors' Report PRUDENTIAL GLOBAL FUND, INC.
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
Prudential Global Fund, Inc.
We have audited the accompanying statement of assets and liabilities including
the portfolio of investments, of Prudential Global Fund, Inc., as of October 31,
1995, the related statements of operations for the year then ended and of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential Global
Fund, Inc. as of October 31, 1995, the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated periods,
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
December 13, 1995
Tax Information PRUDENTIAL GLOBAL FUND, INC.
- --------------------------------------------------------------------------------
As required by the Internal Revenue Code, we are to advise you within 60 days of
the Fund's fiscal year end (October 31, 1995) as to the federal tax status of
dividends and distributions paid by the Fund.
During the fiscal year ended October 31, 1995, the Fund paid a long-term capital
gains distribution for Class A, Class B and Class C Shares of $.19 per share
(taxable as capital gains income). We wish to advise you that the corporate
dividends received deduction for the Fund is zero.
For the purpose of preparing your annual federal income tax return, however, you
should report the amounts as reflected on the appropriate Form 1099-DIV or
substitute 1099-DIV.
- --------------------------------------------------------------------------------
B-43
<PAGE>
APPENDIX--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
Asset Allocation
Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.
Diversification
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks and (general returns) of any one type of security.
Duration
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
Market Timing
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
Power of Compounding
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
App-1
<PAGE>
APPENDIX--HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
This chart shows the long-term performance of various asset classes and the
rate of inflation.
[CHART]
Source: Stocks, Bonds, Bills, and Inflation 1995 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is for illustrative
purposes only and is not indicative of the past, present, or future performance
of any asset class or any Prudential Mutual Fund.
Generally, stock returns are attributable to capital appreciation and the
reinvestment of distributions. Bond returns are attributable mainly to the
reinvestment of distributions. Also, stock prices are usually more volatile than
bond prices over the long-term.
Small stock returns for 1926-1989 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.
Long-term government bond returns are represented by a portfolio that contains
only one bond with a maturity of roughly 20 years. At the beginning of each year
a new bond with a then-current coupon replaces the old bond. Treasury bill
returns are for a one-month bill. Treasuries are guaranteed by the government as
to the timely payment of principal and interest; equities are not. Inflation is
measured by the consumer price index (CPI).
Impact of Inflation. The "real" rate of investment return is that which exceeds
the rate of inflation, the percentage change in the value of consumer goods and
the general cost of living. A common goal of long-term investors is to outpace
the erosive impact of inflation on investment returns.
App-2
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1987 to
May 1995. The total returns of the indices include accrued interest, plus the
price changes (gains or losses) of the underlying securities during the period
mentioned. The data is provided to illustrate the varying historical total
returns and investors should not consider this performance data as an indication
of the future performance of the Fund or of any sector in which the Fund
invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Fund Expenses" in the prospectus. The net effect of the
deduction of the operating expenses of a mutual fund on these historical total
returns, including the compounded effect over time, could be substantial.
Historical Total Returns of Different Bond Market Sectors
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YTD
'87 '88 '89 '90 '91 '92 '93 '94 9/95
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Treasury
Bonds(1) 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 13.2%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government
Mortgage
Securities(2) 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 13.1%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Investment Grade
Corporate
Bonds(3) 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 16.5%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S.
High Yield
Corporate
Bonds(4) 5.0% 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 15.6%
- ------------------------------------------------------------------------------------------------------------------------------------
World
Government
Bonds(5) 35.2% 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 17.1%
====================================================================================================================================
Difference between highest
and lowest return percent 33.2 10.2 18.8 24.9 30.9 11.0 10.3 9.9 4.0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Lehman Brothers Treasury Bond Index is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one year.
(2) Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).
(3) Lehman Brothers Corporate Bond Index includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year.
(4) Lehman Brothers High Yield Bond Index is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one year.
(5) Salomon Brothers World Government Index (Non U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the U.S.,
but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.
App-3
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from 1985 through 1994. It does not represent the performance of any
Prudential Mutual Fund.
Average Annual Total Returns of Major World Stock Markets
(1985-1994) (in U.S. dollars)
[The table below was represented as bar graph in the printed material.]
Hong Kong 26.5%
Belgium 24.9%
Austria 23.3%
Netherlands 22.1%
Sweden 21.4%
Switzerland 21.3%
France 20.8%
Spain 20.1%
Germany 18.7%
United Kingdom 17.7%
Japan 16.8%
United States 14.4%
Source: Morgan Stanley Capital International (MSCI) and Lipper Analytical New
Applications. Used with permission. Morgan Stanley Country Indices are unmanaged
indices which include those stocks making up the largest two-thirds of each
country's total stock market capitalization. Returns reflect the reinvestment of
all distributions. This chart is for illustrative purposes only and is not
indicative of the past, present or future performance of any specific
investment. Investors cannot invest directly in stock indices.
This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 stock index with and without reinvested
dividends.
[CHART]
Source: Stocks, Bonds, Bills, and Inflation 1995 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is used for illustrative
purposes only and is not intended to represent the past, present or future
performance of any Prudential Mutual Fund. Common stock total return is based on
the Standard & Poor's 500 Stock Index, a market-value-weighted index made up of
500 of the largest stocks in the U.S. based upon their stock market value.
Investors cannot invest directly in indices.
-------------------------------------------
WORLD STOCK MARKET CAPITALIZATION BY REGION
World total: $12.4 Trillion
Europe 28%
Pacific Basin 35%
Canada 2%
U.S. 35%
-------------------------------------------
Source: Morgan Stanley Capital International, December 1994. Used with
permission. This chart represents the capitalization of major stock markets as
measured by the Morgan Stanley Capital International (MSCI) World Index. The
total market capitalization is based on the value of 1577 companies in 22
countries (representing approximately 60% of the aggregate market value of the
stock exchanges). This chart is for ilustrative purposes only and does not
represent the allocation of any Prudential Mutual Fund.
App-4
<PAGE>
This chart below shows the historical volatility of general interest rates as
measured by the long U.S. Treasury Bond.
[Chart]
Source: Stocks, Bonds, Bills, and Inflation 1995 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex Sinquefield). Used
with permission. All rights reserved. The chart illustrates the historical yield
of the long-term U.S. Treasury Bond from 1926-1994. Yields represent that of an
annually renewed one-bond portfolio with a remaining maturity of approximately
20 years. This chart is for illustrative purposes and should not be construed to
represent the yields of any Prudential Mutual Fund.
App-5
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
(1) The following financial statement is included in the Prospectus as
constituting Part A of this Post-Effective Amendment to the Registration
Statement:
Financial Highlights.
(2) The following financial statements are included in the Statement
of Additional Information constituting Part B of this Post-Effective
Amendment to the Registration Statement:
Independent Auditors' Report.
Portfolio of Investments at October 31, 1995.
Statement of Assets and Liabilities at October 31, 1995.
Statement of Operations for the Year ended October 31, 1995.
Statement of Changes in Net Assets for the years ended October
31, 1995 and 1994.
Notes to Financial Statements.
Financial Highlights for the Five Years ended October 31, 1995.
(b) Exhibits:
1. (a) Restated Articles of Incorporation. Incorporated by reference
to Exhibit 1 to Post-Effective Amendment No. 17 to the
Registration Statement filed on Form N-1A via EDGAR on January 3,
1995 (File No. 2-89725).
(b) Articles Supplementary.*
2. Amended and Restated By-Laws of the Registrant, incorporated by
reference to Exhibit 2 to Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A (File No. 2-89725 filed via
EDGAR).
4. (a) Specimen Certificate for shares of Common Stock of the
Registrant, incorporated by reference to Exhibit No. 4 to the
Registration Statement on Form N-1A, Pre-Effective Amendment No.
1 (File No. 2-89725).
(b) Specimen Certificate for shares of Common Stock of the
Registrant for Class A Shares, incorporated by reference to
Exhibit 4(b) to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File No. 2-89725).
(c) Instruments defining rights of shareholders, incorporated by
reference to Exhibit No. 4(c) to the Registration Statement on
Form N-1A, Post-Effective Amendment No. 14 (File No. 2-89725
filed via EDGAR).
5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc., incorporated by reference to
Exhibit No. 5(a) to Post-Effective Amendment No. 7 to
Registration Statement on Form N-1A (File No. 2-89725).
(b) Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation,
incorporated by reference to Exhibit No. 5(b) to Post-Effective
Amendment No. 7 to the Registration Statement on Form N-1A (File
No. 2-89725).
6. (a) Distribution and Service Agreement for Class A shares as
amended and restated June 5, 1995, incorporated by reference to
Exhibit No. 6 (a) to Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A(File No. 2-89725) filed on
November 1, 1995.
(b) Distribution and Service Agreement for Class B shares as
amended and restated June 5, 1995, incorporated by reference to
Exhibit No. 6 (b) to Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A(File No. 2-89725) filed on
November 1, 1995.
(c) Distribution and Service Agreement for Class C shares as
amended and restated June 5, 1995, incorporated by reference to
Exhibit No. 6 (c) to Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A(File No. 2-89725) filed on
November 1, 1995.
(d) Form of Distribution and Service Agreement for Class Z
shares, incorporated by reference to Exhibit No. 6 (d) to
Post-Effective Amendment No. 18 to the Registration Statement on
Form N-1A (File No. 2-89725) filed on November 1, 1995.
C-1
<PAGE>
8. (a) Custodian Agreement between the Registrant and State Street
Bank and Trust Company, incorporated by reference to Exhibit No.
8 to Registration Statement on Form N-1A (File No. 2-89725).
(b) Form of Amendment to Custodian Agreement, incorporated by
reference to Exhibit No. 8(b) to Post-Effective Amendment No. 18
to the Registration Statement on Form N-1A (File No. 2-89725)
filed on November 1, 1995.
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference
to Exhibit No. 9 to the Registration Statement on Form N-1A,
Post-Effective Amendment No. 7 (File No. 2-89725).
10. (a) Opinion of Sullivan & Cromwell, incorporated by reference to
Exhibit No. 10 to the Registration Statement on Form N-1A,
Pre-Effective Amendment No. 1 (File No. 2-89725).
(b) Opinion of Sullivan and Cromwell.*
11. Consent of Independent Accountants.*
13. Purchase Agreement incorporated by reference to Exhibit No. 13 to
the Registration Statement on Form N-1A, Pre-Effective Amendment
No. 1 (File No. 2-89725).
15. (a) Amended and Restated Distribution and Service Plan for Class
A shares dated July 1, 1993, incorporated by reference to Exhibit
No.15(d) to the Registration Statement on Form N-1A,
Post-Effective Amendment No. 14 (File No. 2-89725) filed via
EDGAR.
(b) Amended and Restated Distribution and Service Plan for Class
B shares dated July 1, 1993, incorporated by reference to Exhibit
No.15(e) to the Registration Statement on Form N-1A,
Post-Effective Amendment No. 14 (File No. 2-89725) filed via
EDGAR.
(c) Distribution and Service Plan for Class A shares.
Incorporated by reference to Exhibit 6(c) to Post-Effective
Amendment No. 17 to the Registration Statement filed on Form N-1A
via EDGAR on January 3, 1995 (File No. 2-89725).
(d) Distribution and Service Plan for Class B shares.
Incorporated by reference to Exhibit 6(d) to Post-Effective
Amendment No. 17 to the Registration Statement filed on Form N-1A
via EDGAR on January 3, 1995 (File No. 2-89725).
(e) Distribution and Service Plan for Class C shares.
Incorporated by reference to Exhibit 6(e) to Post-Effective
Amendment No. 17 to the Registration Statement filed on Form N-1A
via EDGAR on January 3, 1995 (File No. 2-89725).
16. Schedule of Computation of Performance Quotations, incorporated
by reference to Exhibit No. 16 to the Registration Statement on
Form N-1A, Post-Effective Amendment No. 1 (File No. 2-89725).
17. Financial Data Schedules, filed as Exhibit 27 for electronic
purposes.*
18. Rule 18f-3 Plan, incorporated by reference to Exhibit No. 18 to
Post-Effective Amendment No. 18 to the Registration Statement on
Form N-1A (File No. 2-89725) filed on November 1, 1995.
Other Exhibits.
- ----------
*Filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of December 6, 1995, there were 45,058, 47,835 and 705 record holders of
Class A, Class B and Class C common stock, $.01 par value per share, of the
Registrant, respectively.
Item 27. Indemnification
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VI of the Fund's By-Laws (Exhibit 2 to
the Registration Statement), officers, directors, employees and agents of the
Registrant will not be liable to the Registrant, any stockholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General
C-2
<PAGE>
Corporation Law permits indemnification of directors who acted in good
faith and reasonably believed that the conduct was in the best interests of the
Registrant. As permitted by Section 17(i) of the 1940 Act, pursuant to Section
10 of each Distribution Agreement (Exhibits 6(b) and (c) to the Registration
Statement), each Distributor of the Registrant may be indemnified against
liabilities which it may incur, except liabilities arising from bad faith, gross
negligence, willful misfeasance or reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (Securities Act) may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such director,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of such
issue.
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Section 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
Item 28. Business and other Connections of Investment Adviser
(a) Prudential Mutual Fund Management, Inc.
See "How the Fund is Managed--Manager" in the Prospectus constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-3110, filed on March 30, 1994).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice President, Executive Vice President, Director of Marketing and
Director of Marketing and Director, PMF; Senior Vice President, Prudential Securities
Director Incorporated (Prudential Securities); Chairman and Director,
Prudential Mutual Fund Distributors, Inc. (PMFD)
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities; Vice President, PMFD
Frank W. Giordano Executive Vice Executive Vice President, General Counsel, Secretary and
President, General Director, PMF and PMFD; Senior Vice President, Prudential
Counsel, Secretary and Securities; Director, Prudential Mutual Fund Services, Inc.
Director (PMFS)
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Robert F. Gunia Executive Vice President, Executive Vice President, Chief Financial and Administrative
Chief Financial and Officer, Treasurer and Director, PMF; Senior Vice President,
Administrative Officer, Prudential Securities; Executive Vice President, Chief
Treasurer and Director Financial Officer, Treasurer and Director, PMFD; Director,
PMFS
Theresa A. Hamacher Director Director, PMF; Vice President, Prudential; Vice President,
Prudential Investment Corporation (PIC)
Timothy J. O'Brien Director President, Chief Executive Officer, Chief Operating Officer
and Director, PMFD; Chief Executive Officer and Director,
PMFS; Director, PMF
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF;
Executive Officer and Executive Vice President, Director and Member of the
Director Operating Committee, Prudential Securities; Director,
Prudential Securities Group, Inc. (PSG); Executive Vice
President, PIC; Director, PMFD; Director, PMFS
S. Jane Rose Senior Vice President, Senior Vice President and Senior Counsel and Assistant
Senior Counsel Secretary, PMF; Senior Vice President and Senior Counsel,
and Assistant Prudential Securities
Secretary
Donald G. Southwell Director Senior Vice President, Prudential; Director, PSG
213 Washington Street
Newark, NJ 07102
</TABLE>
(b) The Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of PIC's directors and executive
officers are as set forth below. Except as otherwise indicated, the address of
each person is Prudential Plaza, Newark, NJ 07101.
<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
William M. Bethke Senior Vice President Senior Vice President, The Prudential Insurance Company of
Two Gateway Center America (Prudential); Senior Vice President, PIC
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice President and Senior Vice President, Prudential; Senior Vice President and
51 JFK Parkway Director Director, PIC
Short Hills, NJ 07078
Barry M. Gillman Director Director, PIC
Theresa A. Hamacher Vice President Vice President, Prudential; Vice President, PIC; Director,
PMF
Harry E. Knapp, Jr. President, Chairman of the President, Chairman of the Board, Chief Executive Officer
Board, Chief Executive and Director, PIC; Vice President, Prudential
Officer and Director
William P. Link Senior Vice Executive Vice President, Prudential; Senior Vice President,
Four Gateway Center President PIC
Newark, NJ 07102
Richard A. Redeker Executive Vice President President, Chief Executive Officer and Director, PMF;
One Seaport Plaza Executive Vice President, Director and Member of the
New York, NY 10292 Operating Committee, Prudential Securities; Director, PSG;
Executive Vice President, PIC; Director, PMFD; Director, PMFS
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
- ---------------- ----------------- ---------------------
<S> <C> <C>
Eric A. Simonson Vice President and Director Vice President and Director, PIC; Executive Vice President,
Prudential
Claude J. Zinngrabe, Jr. Executive Vice President Vice President, Prudential; Executive Vice President, PIC
</TABLE>
Item 29. Principal Underwriters
(a)(i) Prudential Securities
Prudential Securities is distributor for Prudential Government Securities
Trust (Intermediate Term Series), Prudential Jennison Fund, Inc., The Target
Portfolio Trust, The BlackRock Government Income Trust, Global Utility Fund,
Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund),
Prudential Allocation Fund, Prudential California Municipal Fund (California
Income Series and California Series), Prudential Diversified Bond Fund, Inc.,
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe
Growth Fund, Inc., Prudential Global Fund, Inc., Prudential Global Genesis Fund,
Inc., Prudential Global Natural Resources Fund, Inc., Prudential Government
Income Fund, Inc., Prudential Growth Opportunity Fund, Inc., Prudential Mortgage
Income Fund, Inc., Prudential High Yield Fund, Inc., Prudential Intermediate
Global Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential
Municipal Bond Fund, Prudential Municipal Series Fund (except Connecticut Money
Market Series, Massachusetts Money Market Series, New York Money Market Series
and New Jersey Money Market Series), Prudential National Municipals Fund, Inc.,
Prudential Pacific Growth Fund, Inc., Prudential Global Limited Maturity Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential U.S. Government Fund
and Prudential Utility Fund, Inc. Prudential Securities is also a depositor for
the following unit investment trusts:
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(b)(i) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below.
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ----------- ----------
<S> <C> <C>
Robert Golden .............. Executive Vice President and Director None
One New York Plaza
New York, NY
Alan D. Hogan .............. Executive Vice President, Chief Administrative Officer and Director None
George A. Murray ........... Executive Vice President and Director None
Leland B. Paton ............ Executive Vice President and Director None
One New York Plaza
New York, NY
Vincent T. Pica, II ........ Executive Vice President and Director None
One New York Plaza
New York, NY
Richard A. Redeker ......... Executive Vice President and Director President and
Director
Gregory W. Scott ........... Executive Vice President, Chief Financial Officer and Director None
Hardwick Simmons ........... Chief Executive Officer, President and Director None
Lee B. Spencer, Jr. ........ Executive Vice President; Secretary, General Counsel and Director None
</TABLE>
- ----------
(1) The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.
C-5
<PAGE>
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts, The Prudential Investment Corporation, Prudential Plaza,
745 Broad Street, Newark, New Jersey 07102, the Registrant, One Seaport Plaza,
New York, New York 10292, and Prudential Mutual Fund Services, Inc., Raritan
Plaza One, Edison, New Jersey 08837. Documents required by Rules 31a-1(b)(5),
(6), (7), (9), (10) and (11) and 31a-1(f) will be kept at Two Gateway Center,
documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at One Seaport
Plaza and the remaining accounts, books and other documents required by such
other pertinent provisions of Section 31(a) and the Rules promulgated thereunder
will be kept by State Street Bank and Trust Company and Prudential Mutual Fund
Services, Inc.
Item 31. Management Services
Other than as set forth under the captions "How the Fund is
Managed--Manager" and "How the Fund is Managed--Distributor" in the Prospectus
and the captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service contract.
Item 32. Undertakings
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, and State of New York, on the 28th day of December, 1995.
PRUDENTIAL GLOBAL FUND, INC.
/s/ Richard A. Redeker
-------------------------------------
(Richard A. Redeker, President)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen C. Eyre Director December 28, 1995
- --------------------------------------
Stephen C. Eyre
/s/ Delayne D. Gold Director December 28, 1995
- --------------------------------------
Delayne D. Gold
/s/ Dan G. Hoff Director December 28, 1995
- --------------------------------------
Dan G. Hoff
/s/ Harry A. Jacobs, Jr. Director December 28, 1995
- --------------------------------------
Harry A. Jacobs, Jr.
/s/ Sidney R. Knafel Director December 28, 1995
- --------------------------------------
Sidney R. Knafel
/s/ Robert E. LaBlanc Director December 28, 1995
- --------------------------------------
Robert E. LaBlanc
/s/ Thomas A. Owens, Jr. Director December 28, 1995
- --------------------------------------
Thomas A. Owens, Jr.
/s/ Richard A. Redeker President and Director December 28, 1995
- --------------------------------------
Richard A. Redeker
/s/ Clay T. Whitehead Director December 28, 1995
- --------------------------------------
Clay T. Whitehead
/s/ Grace C. Torres Treasurer, Principal Financial and December 28, 1995
- -------------------------------------- Accounting Officer
Grace C. Torres
</TABLE>
<PAGE>
EXHIBIT INDEX
1. (a) Restated Articles of Incorporation. Incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 17 to the Registration Statement
on Form N-1A via EDGAR on January 3, 1995 (File No. 2-89725).
(b) Articles Supplementary.*
2. Amended and Restated By-Laws of the Registrant, incorporated by reference
to Exhibit 2 to Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A (File No. 2-89725 filed via EDGAR).
4. (a) Specimen Certificate for shares of Common Stock of the Registrant,
incorporated by reference to Exhibit No. 4 to the Registration Statement on
Form N-1A, Pre-Effective Amendment No. 1 (File No. 2-89725).
(b) Specimen Certificate for shares of Common Stock of the Registrant for
Class A Shares, incorporated by reference to Exhibit No. 4(b) to
Post-Effective Amendment No. 11 to the Registration Statement on Form N-1A
(File No. 2-89725).
(c) Instruments defining rights of shareholders, incorporated by reference
to Exhibit No. 4(c) to the Registration Statement on Form N-1A,
Post-Effective Amendment No. 14 (File No. 2-89725) filed via EDGAR.
5. (a) Management Agreement between the Registrant and Prudential Mutual Fund
Management, Inc., incorporated by reference to Exhibit No. 5(a) to
Post-Effective Amendment No. 7 to Registration Statement on Form N-1A (File
No. 2-89725.)
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation, incorporated by reference to
Exhibit No. 5(b) to Post-Effective Amendment No. 7 to the Registration
Statement on Form N-1A (File No. 2-89725).
6. (a) Distribution and Service Agreement for Class A shares as amended and
restated June 5, 1995, incorporated by reference to Exhibit No. 6 (a) to
Post-Effective Amendment No. 18 to the Registration Statement on Form
N-1A(File No. 2-89725) filed on November 1, 1995.
(b) Distribution and Service Agreement for Class B shares as amended and
restated June 5, 1995, incorporated by reference to Exhibit No. 6 (b) to
Post-Effective Amendment No. 18 to the Registration Statement on Form
N-1A(File No. 2-89725) filed on November 1, 1995.
(c) Distribution and Service Agreement for Class C shares as amended and
restated June 5, 1995, incorporated by reference to Exhibit No. 6 (c) to
Post-Effective Amendment No. 18 to the Registration Statement on Form
N-1A(File No. 2-89725) filed on November 1, 1995.
(d) Form of Distribution and Service Agreement for Class Z shares,
incorporated by reference to Exhibit No. 6 (d) to Post-Effective Amendment
No. 18 to the Registration Statement on Form N-1A (File No. 2-89725) filed
on November 1, 1995.
8. (a) Custodian Agreement between the Registrant and State Street Bank and
Trust Company, incorporated by reference to Exhibit No. 8 to Registration
Statement on Form N-1A (File No. 2-89725).
(b) Form of Amendment to Custodian Agreement, incorporated by reference to
Exhibit No. 8(b) to Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A (File No. 2-89725) filed on November 1, 1995.
9. Transfer Agency and Service Agreement between the Registrant and Prudential
Mutual Fund Services, Inc., incorporated by reference to Exhibit No. 9 to
the Registration Statement on Form N-1A, Post-Effective Amendment No. 7
(File No. 2-89725).
10. (a) Opinion of Sullivan & Cromwell, incorporated by reference to Exhibit
No. 10 to the Registration Statement on Form N-1A, Pre-Effective Amendment
No. 1 (File No. 2-89725).
(b) Opinion of Sullivan & Cromwell.*
11. Consent of Independent Accountants.*
13. Purchase Agreement incorporated by reference to Exhibit No. 13 to the
Registration Statement on Form N-1A, Pre-Effective Amendment No. 1 (File
No. 2-89725).
15. (a) Amended and Restated Distribution and Service Plan for Class A shares
dated July 1, 1993, incorporated by reference to Exhibit No. 15(d) to the
Registration Statement on Form N-1A, Post-Effective Amendment No. 14 (File
No. 2-89725) filed via EDGAR.
(b) Amended and Restated Distribution and Service Plan for Class B shares
dated July 1, 1993, incorporated by reference to Exhibit No. 15(e) to the
Registration Statement on Form N-1A, Post-Effective Amendment No. 14 (File
No. 2-89725) filed via EDGAR.
(c) Distribution and Service Plan for Class A shares. Incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment No. 17 to the
Registration Statement on Form N-1A via EDGAR on January 3, 1995 (File No.
2-89725).
<PAGE>
(d) Distribution and Service Plan for Class B shares. Incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment No. 17 to the
Registration Statement on Form N-1A via EDGAR on January 3, 1995 (File No.
2-89725).
(e) Distribution and Service Plan for Class C shares. Incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment No. 17 to the
Registration Statement on Form N-1A via EDGAR on January 3, 1995 (File No.
2-89725).
16. Schedule of Computation of Performance Quotations, incorporated by
reference to Exhibit No. 16 to the Registration Statement on Form N-1A,
Post-Effective Amendment No. 1 (File No. 2-89725).
17. Financial Data Schedules, filed as Exhibit 27 for electronic purposes.*
18. Rule 18F-3 Plan, incorporated by reference to Exhibit No. 18 to
Post-Effective Amendment No. 18 to the Registration Statement on Form N-1A
(File No. 2-89725) filed on November 1, 1995.
- ----------
*Filed herewith.
Exhibit 1(b)
ARTICLES SUPPLEMENTARY
OF
PRUDENTIAL GLOBAL FUND, INC.
* * * * * * *
Pursuant to Section 2-208.1
of the Maryland General Corporation Law
* * * * * * *
Prudential Global Fund, Inc., a Maryland corporation having its principal
offices in Baltimore, Maryland and New York, New York (the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of
Maryland, that:
FIRST: The Corporation is registered as an open-end company under the
Investment Company Act of 1940.
SECOND: The total number of shares of all classes of stock which the
Corporation has authority to issue is 500,000,000 shares of common stock, par
value of $.01 each, having an aggregate par value of $5,000,000, and the total
number of shares of common stock that the Corporation has authority to issue is
not being increased or decreased.
THIRD: Heretofore, the number of authorized shares of which the Corporation
has authority to issue was divided into three classes of shares, consisting of
166,666,666 2/3 Class A shares, 166,666,666 2/3 Class B shares and 166,666,666
2/3 Class C shares.
FOURTH: In accordance with Section 2-105(c) of the Maryland General
Corporation Law and pursuant to a resolution duly adopted by the Board of
Directors of the Corporation at a meeting held on September 28, 1995, the number
of authorized shares of which the Corporation has authority to issue is hereby
divided into four classes of shares, consisting of 125 million Class A shares,
125 million Class B shares, 125 million Class C shares and 125 million Class Z
shares.
FIFTH: The Class Z shares shall represent the same interest in the
Corporation and have identical voting, dividend, liquidation and other rights as
the Class A, Class B and Class C shares except that (i) Expenses related to the
distribution of each class of shares shall be borne solely by such class; (ii)
The bearing of such expenses solely by shares of each class shall be
appropriately reflected (in the manner determined by the Board of Directors) in
the net asset value, dividends, distribution and liquidation rights of the
shares of such class; (iii) The Class A Common Stock shall be subject to a
front-end sales load and a Rule 12b-1 distribution fee as determined by the
Board of Directors from time to time; (iv) The Class B Common Stock shall be
subject to a contingent deferred sales charge and a Rule 12b-1 distribution fee
as determined by the Board of Directors from time to time; (v) The Class C
Common Stock shall be subject to a contingent deferred sales charge and a Rule
12b-1 distribution fee as determined by the Board of Directors from time to time
and (vi) The Class Z Common Stock shall not be subject to a front-end sales
load, a contingent deferred sales charge nor a 12b-1 distribution fee. All
shares of each particular class shall represent an equal proportionate interest
in that class, and each share of any particular class shall be equal to each
other share of that class.
IN WITNESS WHEREOF, PRUDENTIAL GLOBAL FUND, INC., has caused these presents
to be signed in its name and on its behalf by its Vice President and attested by
its Assistant Secretary on December 26, 1995.
PRUDENTIAL GLOBAL FUND, INC.
By /s/ Robert F. Gunia
Robert F. Gunia
Vice President
Attest: /s/ Ellyn C. Acker
Ellyn C. Acker
Assistant Secretary
THE UNDERSIGNED, Vice President of Prudential Global Fund, Inc., who
executed on behalf of the Corporation the foregoing Articles Supplementary of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles Supplementary to be the
corporate act of said Corporation and hereby certifies that to the best of his
knowledge, information and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ Robert F. Gunia
Robert F. Gunia
Vice President
artsupp.glf
Exhibit 10(B)
SULLIVAN & CROMWELL
NEW YORK TELEPHONE: (212) 555-4000
TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC)
CABLE ADDRESS: LADYCOURT, NEW YORK
FACSIMILE: (212) 558-3588 (125 Broad Street)
(212) 558-3792 (250 Park Avenue)
125 BROAD STREET, NEW YORK 10004-2498
-----------
250 PARK AVENUE, NEW YORK 10177-0021
1701 PENNSYLVANIA AVE, N.W. WASHINGTON, D.C. 20006-5805
444 SOUTH FLOWER STREET, LOS ANGELES 90071-2901
8, PLACE VENDOME, 75001 PARIS
ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY
101 COLLINS STREET, MELBOURNE 3000
2-1, MARUNOUCHI I-CHOME, CHIYODA-KU, TOKYO 100
GLOUCESTER TOWER, 11 PEDDER STREET, HONG KONG
December 28, 1995
Prudential Global Fund, Inc.,
One Seaport Plaza,
New York, New York 10292.
Dear Sirs:
You have requested our opinion in connection with your filing of
Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A (the
"Post-Effective Amendment") under the Securities Act of 1933 (the "Act") and
your registration in connection therewith of 1,387,699 shares of your Common
Stock, $.01 par value (the "Shares") pursuant to Rule 24e-2 under the Investment
Company Act of 1940.
As your counsel, we are familiar with your organization and corporate
status and the validity of your Common Stock.
We advise you that, in our opinion, when the Post-Effective Amendment
relating to the Shares has become effective under the Act, the Shares, when duly
issued and sold, for not less than the par value thereof and in conformity with
your charter, will be duly authorized and validly issued, fully paid and
nonassessable.
The foregoing opinion is limited to the Federal laws of the United States
and the General Corporation Laws of the State of Maryland, and we are expressing
no opinion as to the effect by the laws of any other jurisdiction.
We have relied as to certain matters on information obtained from public
officials, your officers and other sources believed by us to be responsible.
We consent to the filing of this opinion with the Securities and Exchange
Commission in connection with the notice referred to above. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ SULLIVAN & CROMWELL
---------------------------
Sullivan & Cromwell
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